The most obvious change to be introduced by the European Monetary Union will be the arrival of the euro the coins and notes that will come into use in January 2002.
But for the three preceding years, EMU will be well under way here in Ireland, mainly because all paper money transactions between EMU members will be denominated in euros. The cost savings EMU will eliminate foreign currency exchange charges is expected to be enormous and should trickle down even to pensioners or investors whose pension funds hold European equities and gilts.
In their recent EMU newsletters, both AIB Bank and Eagle Star noted the various advantages that EMU will bring to Irish investors: "EMU means there will be no foreign exchange risk in Europe and this will open up a wider range of companies in any given sector in which to invest," writes Eagle Star's associate director of investments, Mr Paul Callan. "Investors will have more choice, and free from currency considerations, will be keen to invest in companies which will provide the highest risk-adjusted returns. Competition in the market place and for investor's funds, is likely to prompt further restructuring, mergers and acquisitions."
This is the kind of financial activity that was endemic in the US and Britain during the 1980s and early 1990s and many commentators have drawn the comparison between the corporate changes (especially the privatisations of state-owned industry in Britain) that went on in the US and Britain and what is happening in mainland Europe today.
With more companies moving onto the stockmarkets, and more joining forces to create global scale companies, there will be a greater influx of investment money and hopefully, better long-term returns for investors and pensioners.
Investment houses here are already preparing for the removal of the currency exchange costs in 1999 by setting up more European equity funds and by preparing to shift a proportion of the money currently invested in Irish equities (between 30 and 35 per cent on average) into European stocks which they believe will have good prospects once EMU comes on stream.
On a practical level, from 1999, anyone with a life assurance investment policy or pension can expect to have the value of their investment expressed in pounds, euros or both. From 2002 its value will be expressed solely in euros.
To take full advantage of the benefits of EMU, anyone with an equity-based investment should certainly find out what European equity options their fund manager is offering, and take advice about whether to switch a portion of their investment into a European fund of some kind. There are currently six European funds for pensions on the market and 11 other European Equity funds.
An EMU tracker bond was introduced a fortnight ago and the selection will widen considerably over the next year.
On the savings side, AIB recommends that people with short-term savings are probably getting the best interest rates at the moment and this is unlikely to change in the short term. However, long-term savings are at risk as a result of our joining EMU and with German rates considerably lower than our own, the Irish ones will have to converge relatively soon. You may wish to fix your funds for a few years at today's higher rates.
EMU in itself cannot guarantee absolute interest rate stability. Levels will be established by the European Central Bank and will be largely dictated by the biggest economies in EMU notably, Germany, France and Italy.
But if all goes well, and the verdict is still out on the wisdom of even going into EMU without Britain, it looks as if investment opportunities are going to widen and improve and become that bit cheaper to buy into. For someone saving for their children's college education or for their retirement, EMU could prove very attractive indeed.
