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Finding opportunity in the Euro Zone The discussion taking place in world economic circles about the new euro currency is more than just complicated theorizing about a matter of importance only to 11 countries in Europe. It is a matter of very clear importance to Egypt. Together, the countries that make up the European Union are Egypt's largest trading partner, and anything that has a significant impact on their economies can be expected eventually to have a significant impact on Egypt's as well. It's a truism that hardly anything affects an economy as pervasively as its currency. So those of us counting on growing exports as a source of growth had better take note of what is happening across the Mediterranean. In short, what is happening is that 11 countries have locked their currencies into the continent-wide euro. In doing so, they have traded direct control over monetary policy for the economic benefits expected to follow from the simplification of Europe's needlessly complex foreign exchange markets. With foreign-exchange hassles out of the way, the cost of doing business in Europe is expected to fall. As a result, economic activity is expected to expand. All of this is good news for Egypt. When the people who account for nearly half of Egypt's trade with the world are making more money, Egyptian sales are sure to increase. Egyptian traders will benefit from the elimination of the "dollar bridge" - the need to conduct trade in dollars even if the buyer is ultimately paying in francs or deutsche marks - an inefficient extra step that ex-poses traders to extra currency risk. Some observers also say the euro, by making European exporters' operations more efficient, could lower the cost of Egypt's imports. The long-term consequences of the euro, however, extend beyond trade. In particular, the euro could offer Egypt a better way to manage its own currency. Right now, the Egyptian pound is virtually pegged to the U.S. dollar. This arrangement has provided economic stability and has kept inflation low, but it will become less and less sustainable as Egypt increases its exposure to world markets. Some experts say keeping the pound stable in the future will require distancing it from the ups and downs of the dollar. The solution is to link the pound to a basket of currencies whose composition reflects the distribution of Egypt's trade. The complexity of balancing the pound against dozens of currencies has made such an option unfeasible to this point. But with the unification of those currencies in the euro, a more sustainable pound policy is in reach. Egyptian officials are said to be studying such a shift. In many event, it is important that we, as business people, position ourselves to take maximum advantage of the opportunities presented by this new currency. Our computer science industry, for example, has a giant opportunity to help Europeans and others retool their accounting and computer systems to cope with the new currency. The industry monitoring Gartner Group said in 1997 that preparing computer system s for the euro will cost $100 billion, only about a third of which will be spent in the European Union itself. Although many companies are obviously euro-ready, there is likely to be plenty of work to be done. Fixing up a large bank, for example, will cost $100 million - and in some cases will take 114 person-years to finish. In addition, 75 percent of Europe's companies are using personalized programs, meaning cookie-cutter solutions won't work, which increases the need for subcontractors. And surveys show progress on euro-readiness have taken a back seat to progress on the Year 2000 problem. This is just one example, but it should serve as notice that the euro has ushered in a new world rich with opportunity, one of which we need to do our best to take advantage. Ahmed Shawki |
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