1 Jan 1999: a date with disaster?

The EC must act quickly if Europe is to have the software to cope with EMU, writes Annie Gurton

With a bit of luck, Britain's participation in the single currency will be delayed. If we are really fortunate, the start of economic and monetary union for the whole of Europe will be knocked back two or three years. Otherwise we are set for far more chaos and confusion than any of the year 2000 doom-merchants are predicting. For no accounting software packages look likely to be fully EMU-compliant by 1 January 1999, the date when the euro is currently scheduled to become a legal currency.

The problem is not the software houses, which are keen to get on with upgrading their products, but with the European Commission and national governments, which are being slow in defining and ruling on various issues. According to Dennis Keeling, director of the Business & Accounting Software Developers Association (Basda), speaking at a recent conference for software developers, unless some decisions are made soon and action taken promptly, 1 January 1999 could trigger an economic meltdown across Europe.

"A number of fundamental issues need to be ruled on, such as how you evaluate fixed assets and whether company returns should be in euros or the national currency," Keeling says. "Software houses are paralysed until decisions are made and they are able to get on with the process of reprogramming."

One question is whether countries convert to the euro in a "Big Bang" move, or whether the two currencies are run in parallel. Most nations favour the latter approach, but a parallel strategy will make accounting infinitely more complex. A Big Bang approach, on the other hand, would be harder to reverse if the euro hit problems. At the moment, France, Germany and Italy are committed to trading internationally in the euro currency from 1 January 1999. Anyone doing business with those countries will have to have software able to recognise the euro. From January 2002, euro coins and notes will become legal tender, circulating among participating nations and recognised globally.

Until now, received wisdom has held that British companies that only traded within the domestic market could take their time upgrading their accounting software, whether or not Britain joins in 1999. Many software products allow for multi-currency transactions, and business managers believe that the euro could be regarded as another foreign currency. On the contrary, EMU requires the euro to be recognised as primary currency and software needs to have two base systems. So many software accounting products will have to be rewritten completely. Ironically, many American software products will cope because they already have to offer the dual base currency facility for trading with South America.

Martin Mackay, European manager of the application development house Peoplesoft, says that many large multinational organisations will find themselves unable to meet the complex reporting requirements of EMU because their software will be unable to cope. "No software provider is currently able to claim complete EMU compliance," he says. "The complex issues surrounding conversion, rounding and exchange rates alone make such a claim impossible."

According to Tina Dinnis, an executive in European affairs and the single currency for the Association for Payment Clearing Services (Apacs), one problem for smaller British companies is that many of the multinationals they deal with will insist their suppliers deal in euros from an early stage. "As with EDI [electronic data interchange], corporate customers will quickly insist that their suppliers do things their way," she explains. "So a manufacturer supplying Marks & Spencer or Tesco, for example, may find not only do they have to have EDI facilities but also software which conforms to EMU specifications. Few domestic suppliers who do not export are even aware that this is a possibility."

Charles Brewer of the Computer Software & Services Association (CSSA) says: "Philips, the Dutch conglomerate, recently announced that it will require all its suppliers to deal with it in euros. Small companies will not be able to afford to lose the business and will be forced to become EMU-compliant far earlier than they had anticipated. But at the moment the software is not available to enable them to do that."

Peoplesoft's Mackay says, "Not only do governments and the European Commission have to do something very fast, but the software houses will have to respond extremely rapidly to requirements as they develop"n