Euro: The Single European CurrencySpring 1998
In May 1998, the European Council, comprised of the political leaders of the European Union (EU) member states, decided that 11 of the 15 EU member states qualified for membership in the Economic and Monetary Union (EMU). In January 1999, these member states will exchange their national currencies for the Euro, the single European currency.
The EMU will provide the central monetary and budgetary policies that will guide and regulate this new and important step toward a single European market. The establishment of the European Economic Community (now EU) in 1957 was an important milestone in the process of integrating the economies of the member states. The EMU will take this integration a step further-the EMU intends to use the Euro to end currency fluctuation between the national currencies of the member states and to stabilize interest rates. By removing these internal trade barriers the EMU and the Euro will enhance the competitiveness of Europe against other major players in international trade (e.g., the United States dollar and the Japanese yen).
After giving an overview of the timetable connected with the transition to the Euro, this article will touch briefly on some of the consequences of the transition to the Euro for commercial contracts.
Timetable. The European Council decided in 1992 (Treaty of Maastricht) that the EMU would be formed and the Euro established. In May 1998, the member states met to assess which member states were qualified to meet the convergence criteria (certain standards on inflation rates, capital markets interest rates, public deficit and public debt) and were willing to become part of the EMU and Euro group. Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain have qualified. Denmark, Sweden and the United Kingdom had already declared they will not participate in the EMU, although all three countries are expected to meet the convergence criteria. Greece has not yet met the convergence criteria. It is generally expected, and provided for in the Maastricht Treaty (and other treaties such as the Treaty of Amsterdam and the Treaty of Dublin), that other member states of the EU will join the front-runners at a later point.
The member states that qualify and intend to participate will start with the EMU January 1, 1999. In the period following the start-up (a maximum of three years), fluctuating rates of exchange between the national currencies will be fixed irrevocably. Also, the monetary policy will be executed in Euros and the EMU member states will only issue government bonds in Euros. In this phase, payment in Euros will be possible, although only by bank-to-bank direct payments and with the limitation that the party that receives payment in Euros may choose whether or not to accept such payment.
On or shortly before January 1, 2002, Euronotes and coins will be distributed ("E-day") and cash payment in Euros will be made possible. Notes and coins of the national currencies (e.g., Deutsch marks and Dutch guilders) will begin to be withdrawn from circulation. These withdrawals should be completed by July 1, 2002. Therefore, from January 1, 2002, both the national currencies and the Euro will be legal tender, which means that payment in Euros cannot be refused. On the same date, all contracts expressed in national currencies will be converted into Euro contracts by operation of law.
By mid-2002 the final step will be taken-the national currencies will lose their status as legal tender. Therefore, by this date, a large part of Europe will have one common legal tender, the Euro.
Consequences for Commercial Contracts. The transition to the Euro will affect all business and people in the member states. It is expected that the economic gains will not be realized until two or three years after the transition is completed. However, directly after the EMU has started, a number of negative effects of the transition will be felt-computer software will have to be rewritten and, for a limited period of time, companies will have to institute dual pricing for their products. The consequences for financial institutions will be severe-they stand to lose a large part of their currency and swaps business.
The Euro will also have legal implications for all contracts which contain a payment obligation in or a reference to a disappearing currency. However, in most cases, the consequences of the transition from the disappearing currency into the Euro will not pose a problem. Amounts denominated in a disappearing currency will by operation of law (either a law of a specific member state or EU treaty) be converted to amounts in Euros. What the legal tender is, and what the rate of exchange is, will be determined by the law of the country of the currency ("lex monetae").
There are, however, some other aspects of the transition that deserve closer attention. First, the value of the Euro might differ from the value of the currency of the contract. The value of the Euro is comprised of the values of the underlying economies of the EMU member states and not only the value of the country of the currency. This means that an American company that is engaged in business transactions with, for instance, a company in Germany or the Netherlands, both countries with strong economies and stable currencies, could receive payment in Euros that may have a lower exchange value in U.S. dollars than Deutsch marks or Dutch guilders. Damages could also be incurred as a result of interest rate fluctuations, especially if the contract contains a fixed interest rate. Therefore, a party may want to renegotiate or terminate a contract or claim damages.
Second, whether the transition to the Euro is a ground for dissolution or revision of the contract cannot be answered easily since it largely depends on the law that governs a contract. The European Community has drafted a regulation that determines, for contracts governed by the laws of EMU and EU member states, that the introduction of the Euro shall not be a ground for dissolution or revision. For contracts governed by the laws of third countries a simple answer cannot be given.
Finally, whether or not damages may be claimed is also dependent on the law that governs the contract and therefore remains uncertain. The European Community is not planning to issue a regulation that deals with this problem. Since to some extent currency and interest risks are part of any contract, it is expected, at least in Dutch legal literature and according to Dutch law, that a claim for damages will be awarded only in exceptional circumstances.
Conclusion. The transition to the Euro in a number of European countries will, as of 1999, have a major influence on parties doing business in these countries. This article has briefly touched on some of the consequences of the transition for commercial contracts. Many other issues remain. Such as, how to address the setting off of monetary obligations between buyers and sellers. Also, the transition to the Euro will have implications on other areas of law such as tax and corporate law. Instead of waiting for the transition to the Euro and being confronted with the consequences thereof, it may be advisable to anticipate the transition by acting now while long term commitments can be renegotiated and "Euro Clauses" can be included in future contracts.