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Page 2 of 6
The Euro
1. What's Happening Now?
1.1
Sterling fluctuates against the euro.
- If the euro weakens against sterling, UK imports from the eurozone become cheaper and UK exports to the eurozone become more expensive.
- If the euro strengthens against sterling, imports from the eurozone become more expensive and UK exports become more competitive.
- These currency fluctuations involve risks for UK businesses trading with the eurozone (see 2.1).
1.2 Many UK businesses are affected by the euro.
- Businesses importing from or exporting to eurozone countries are the most clearly affected. (See 2.)
- Businesses selling to visitors from the eurozone may decide to accept payment in euros.
- Businesses buying from UK companies opting to account in euros may be asked to make payments in euros.
- Businesses supplying to UK companies opting to account in euros may be asked to receive payments in euros.
1.3 The market conditions created by the eurozone affect all UK businesses.
- The introduction of the euro removed all currency risks between the member countries. This has led to increased competition among eurozone businesses.
- UK businesses must ensure that they maintain their competitive position.
- The eurozone is a very large potential market for UK businesses whose products are competitively priced.
The Effects of 'eurocreep'
UK businesses are now living with the direct effects of the euro.
A number of large companies in the UK now do much of their business in euros.
- If you compete with them, your customers may require you to price in euros, so they can make comparisons.
- If you do business with them, you may have to invoice or pay in the euro.
All businesses based in euro countries have to conduct their business in euros.
Cross-European tendering is now done in euros.
- For example, where the opportunity to compete has to be open to companies throughout the EU (eg government or local authority tenders).
UK-based companies with overseas customers will find it advantageous to price in euros, as well as in sterling.
- They will undoubtedly be asked to accept payment of invoices in euros.
If your customers are mostly British, but might consider buying abroad (see 2.1), consider quoting in euros, so that they can make direct price comparisons.
The spread of the euro means that foreign exchange risk management is a serious issue for any company trading with countries in or joining the eurozone.
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Business Advice