The introduction of the euro on January 1st, 1999, will create the world's second largest economic zone. The euro could remake Europe but not without dislocation.

Monetary union is going to be the catalyst for Europe's revival. However, the key to the euro's success has to be growth economically, politically and in self-confidence. Much of the restructuring which is now gripping Europe is a result of deregulation as companies get ready to meet global competition.

In the deregulated industries such as telecoms and airlines, new players are entering the market, creating jobs, improving standards and, supported by investments in technology, driving prices down.

Perhaps the most important pro-growth effect of the euro will come as it spurs price competition. As prices become visible as a result of a single currency across the Continent, cost and productivity will be instantly measurable. Companies will reallocate investment to the most profitable regions. While jobs will be lost, many more companies will be able to compete globally. The euro will tend to lower prices, which could hurt profits, at least in the short term. However, the up-shot should be a lot leaner, more competitive Europe.

Global competition started pushing companies to restructure. Now the euro will force the pace. The hunt for economies of scale is driving a European mergers-and-acquisitions boom. Last year saw a record number of deals involving over 5,000 companies worth in excess of $380 billion.

Restructuring will eventually reshape Europe's industrial map. During the initial shakeout, countries such as Germany, France and the Netherlands - with higher labour and social costs - are likely to suffer big losses of low and medium-skilled jobs. In contrast, others such as Ireland, Spain and Portugal, which offer low relative wages and taxes, will continue to attract investment.

High corporate taxes will become increasingly difficult for governments to maintain once monetary union is in full operation. If you remove currency as a safety valve, governments will be forced to focus on real changes to become more competitive: lower taxes, labour-market flexibility, and a more favourable regulatory backdrop for business. Germany's top corporate tax rate is 57 per cent, for example, against 10 per cent in Ireland for manufacturing, and a considerable range of other industries.

Once the euro is in place, governments will no longer be able to devalue to lower costs, so companies will have to move to more cost competitive locations in order to maintain market position.

The prospect of cheaper money and shareholder demands for higher performance are also changing corporate Europe. Under-performing French and German conglomerates have been selling companies that cannot match profits of rivals elsewhere.

In the corporate restructuring, one important cultural shift has been observed - workers are grudgingly becoming more flexible.

German companies are negotiating plant-by-plant and work-rule concessions which they never could dobefore. Companies are slowly shifting from propping up losers to investing in winners. As the euro kicks in, it is also likely to speed deregulation. Corporate migration may bring Europe a step closer to harmonising taxes, social legislation and labour regulations. Price transparency will certainly let people see more clearly where there are distortions in the market place.

Morever, over time, widely divergent costs of production across Europe will tend to fall into line. Indeed, to succeed, the euro is dependent on high growth in Europe during the painful transition phase ahead.

For European labour, a tumultuous era has begun. Industrial workers will have to surrender their dreams of secure, well-paid lifetime jobs. As the euro forces European companies to restructure, consolidation in manufacturing companies will accelerate as companies merge, close plants and reorganise distribution.

The consequence of this will be that unemployment will rise and where wages are highest and labour rules are most rigid, the effects will be most pronounced. While business is freer than ever to cross borders, workers remain divided by culture, language and benefit systems.

European workers can, of course, seek work across the EU. With labour mobility unlikely to improve, at least in the short term, the cure for European unemployment will have to come from within national borders. This will present politicians with a formidable challenge and the risk of a political backlash at election time.

On a personal level, the euro could bring unexpected changes. For the first time, average Europeans will be able to look across the Continent and easily compare their salary, taxes and take-home pay to comparable workers and executives in other countries. That could cause Europeans to become far more demanding when it comes to pay rises and tax-cuts. With prices across the Continent posted in the euro, costs of consumer goods are expected to decline. That could spark a new burst of consumption.

Prices on goods now vary sharply from country to country. But once retailers start posting prices in the euro as well as national currencies on January 1st, tracking down the best deals will be much easier. The likely result will be strong downward pressure on prices.

However, it is unlikely that Europe will become an American-style consumer paradise. After currency distortions vanish, there will still be technical hurdles to clear. Broadcast standards for television sets, for example, vary from country to country. Varying tax rates will not disappear either. The 15 EU nations have more than 200 different VAT rates, with levies on cars ranging from 213 per cent in Denmark to just 15 per cent in Germany. However, over time euro-fuelled competition will chip away at these disparities. Moreover, despite the tax differentials, companies will be forced to close cross-border price gaps.

While monetary union should lead to a new era of high productivity, low inflation and steady growth, cementing European economic union will inevitably lead to talk of greater political integration. That, however, is a discussion for another decade.

Bryan Higgins is managing director of BW Bank Ireland plc.