In World Trade's January 2000 look at Europe, the focus was on the newly elected European Commission, created after the previous officials were forced to resign following a corruption scandal, and the year-old euro-zone. There was also a lot of activity surrounding the enlargement of the EU. Since then, new developments have affected these issues, while others of equal prominence have moved to the forefront.

The Euro: Good, Bad, Indifferent

Perhaps the single most important change affecting the EU is the euro, scheduled to become the sole currency for the participating euro-zone countries in January 2002. With just over a year to go, the European Commission has shifted into high gear to get everyone up to speed for the conversion. During the final stage of its information campaign, the European Commission will target companies, particularly small and medium-sized enterprises (SMEs), the general public, and non-participating countries. According to a recent report by the European Commission, SMEs are lagging in their preparation for the euro. Part of the problem, concedes the European Commission, is that the original date for the elimination of national currencies was changed from June 30, 2002 to February 28, 2002. Euro-zone members France, Ireland, Germany, and the Netherlands have opted to implement the euro even earlier. Moreover, polls show that only 10% of SMEs are presently invoicing in euros, and over half of the companies do not plan to do so until it's required. And, just under half of the SMEs admit to having an implementation plan for the euro, while 30% think it's too soon to prepare. These are hardly reassuring findings for the European Commission, which is already warning that accounting and IT resources may be stretched too thin if companies don't prepare in time for the changeover.

The public, too, needs to be comfortable with the euro before January 2002. During this next year, the European Commission will step up education efforts so that Europeans understand prices and values in euros. The effort will pay considerable attention to older citizens and those with impaired sight. Funds will also be made available for additional information campaigns throughout the 11 euro-zone countries, plus Greece and Sweden. To further instill confidence in the euro, the European Commission is also working on new recommendations for dual pricing and counterfeiting regulations.

The effect of the general lack of euro-preparedness within the euro-zone on US companies doing business in Europe could be substantial. Confusion and lack of European accounting resources to help businesses adjust should certainly have a deleterious effect on business generally and unless US companies make their own preparations for dealing in euros now, the problems for them may be amplified.

EC Grapples with the Internet

Another area that has demanded more of the European Commission's time has been the Internet and the myriad regulatory and commercial issues it has generated. Several high-profile media mergers, such as AOL/Time Warner and Warner Music/EMI, have been investigated by the European Commission for their antitrust implications. The fear is that these types of mergers position companies to become "gatekeepers" of the Internet by giving them control over both content and distribution. The European Commission stated that AOL would gain "preferential access to the leading source of music publishing rights and music repertoire in most member states," and would therefore be able to "dictate the technical standards for delivering music over the Internet." Critics claim that the European Commission is trying to legislate something that it doesn't fully understand-the Internet-and rather than squelching competition, the Internet actually promotes competition. They add that similar meddling by the US aimed at trying to encourage technology competition in the cellular communications sector resulted in interoperability problems, whereas in Europe, adherence to the GSM standard has helped push mobile phone usage to among the highest in the world. Nonetheless, the European Commission believes that vertical mergers, especially those involving the lucrative music business, are especially worrisome and it wants to prevent "other industry attempts to create new oligopolies in the digital market."

Clearly, the European Commission realizes the importance of the Internet, and it continues to devote ample efforts toward achieving a knowledge-based economy. As part of its e-Europe initiative, the commission has endeavored to insure that all schools have access to multimedia and Internet resources by the end of next year, and that teachers receive training in information technology by the end of 2002. EU members, meanwhile, are to get help from the European Investment Bank to provide high speed, low cost networks for Internet access. Additionally, the commission has recommended that 32-bit numbers in URL addresses be modified to 128-bit numbers to make room for more Internet addresses.

The Commission has also floated the idea of establishing a ".eu" Internet domain for European businesses and organizations. Such a move would help spur e-commerce throughout Europe, bolster the EU identity, and relieve congestion of the ".com" Internet domain. So far, reaction to the proposal has been favorable and the European Commission is taking steps to advance the idea.

Finally, the Commission has approved a data-protection agreement with the US that covers exporting personal information from the Europe to the US. After months of investigation, the commission says the "safe harbor" agreement with the US adequately protects personal data as required by the 1998 data protection directive. Under terms of the agreement, which is expected to be implemented by November, participating US firms will voluntarily agree to abide by a rigorous set of data protection principles. The US Federal Trade Commission will be charged with monitoring US firms for compliance. (For more on this, see World Trade, September 2000, page 64).

Anti-trust problems aside, all this is good news for US companies since doing business over the Internet offers so many advantages (including helping to overcome the time differences between the US and European business day). Plan on being able to expand e-commerce and other Internet capabilities (video conferencing, e.g.) as both businesses and consumers in Europe rapidly become more Internet savvy.

Trade Beefs and Feats

While the EU and US have managed to work out their differences on data protection, other trade issues continue to hamper relations between the two trade partners. First, the EU defied a WTO decision, which found that maintaining quotas for bananas from former colonies, located mostly in the Caribbean, was against global trade rules. Then the EU chose not to comply with another WTO decision concerning imports of hormone-treated beef. The US retaliated with punitive tariffs on certain EU imports. On the other hand, the US is being faulted by the EU for applying extraterritorial unilateral sanctions against Cuba, Libya, and Iran for political purposes and for its tax policies with regard to Foreign Sales Corporations.

Notwithstanding the trade tussles with the US, the EU has successfully wrapped up major trade agreements with other trade partners, such as a free-trade pact with Mexico and a comprehensive trade and aid pact with the 71 countries of the African-Caribbean-Pacific (ACP) group (extending the Lome Convention). At the same time, negotiations are continuing with the Gulf Cooperation Council (GCC) and new talks have been taken up with Mercosur, the trade bloc composed of Brazil, Argentina, Uruguay, Paraguay, and associate members Bolivia and Chile. In March, the European Commission voted to revise the 1992 Community customs code to streamline customs procedures and provide increased legal security for international traders. Among other things, the revision will advance the use of electronic declarations for imports and exports, and help guard against goods being imported at lowered duty rates because of false country-of-origin certificates.

An (Almost) Borderless EU

Similar to free-trade pacts meant to facilitate the movement of goods and services, Europe's Schengen Agreement, which began in July 1995, is designed to ease the cross-border movement of people between participating European countries-all of the EU members except the UK and Ireland. The agreement does allow participating countries to apply visa requirements in certain circumstances, however, and this has caused problems between Eastern and Western Europe. Eastern Europeans say they are being prevented from traveling freely within Europe, while Western European countries contend they are just trying to avoid an influx of immigrants. The ramifications of the dispute extend beyond unrestricted cross-border travel, though. The issue has touched off a debate in Hungary between the leader of the far-right Justice and Life party, Istvan Csurka, and Hungary's foreign minister, Janos Martonyi. Csurka believes that Hungary's accession to the EU would likely not occur in 2005 partly because of a conflict over the Schengen Agreement. Specifically, Csurka believes that applying the Schengen Agreement would adversely affect Hungarians living in neighboring countries. Foreign minister Martonyi reacted sharply to the assertion, saying that such fears are contrary to the spirit of reunification that is spreading across Europe. In addition, he said that Hungary has at its disposal visa policies that can better deal with Hungarians living outside of Hungary.

Sidebar:A look at how the euro-zone countries are faring, with a grade by World Trade.

Austria

Fallout from the far right Freedom Party's political views, which have ostracized the country from the rest of the EU, has started to gradually subside. The country has agreed to cooperate with an EU-appointed panel created to assess the government's record on democracy and human rights, and Austrian Chancellor Wolfgang Schussel has exerted his confidence in the panel's ultimate findings. Strong economic growth is expected to prevail in the coming months, with GDP growth this year forecast to reach 3% compared to last year's 2.2%.

Belgium

The new "rainbow coalition" government, in place since the middle of last year, has begun to make some progress toward resolving tensions between the French- and Flemish-speaking communities. A proposal to give greater fiscal powers to the regional governments has brought promise for further resolve, although it has yet to be finalized. Belgium's economy is performing well, largely because of robust export demand and consumer spending.

Finland

Finland's biggest worry right now is an overheated economy. It's the season for renegotiating wage contracts, and fears of stronger wage growth are being monitored closely by the Bank of Finland and the Treasury. Meanwhile, the telecom and electronics sectors are pushing the economy forward and unemployment is likely to average under 10% for 2000.

France

Unemployment in France is also expected to drop below the psychologically important 10% level this year, which is right in line with Prime Minister Lionel Jospin's campaign pledge. Economic indicators reveal the economy is performing well and should remain strong in the near future. GDP growth is forecast to hit 3.6% this year, ahead of 1999's 2.9%. Inflation will probably settle at around 1.5% both this year and in 2001. In September, strikes by truckers, farmers, and other workers affected by rising fuel prices caused severe delays and disruptions in France's transportation sectors. The EU said it was investigating to see whether the strikes constituted a breach of EU rules designed to protect the free movement of goods.

Germany

A major tax reform package, approved in July, will significantly reduce business tax rates in 2001. The legislation was a major victory for Chancellor Gerhard Schroder's SPD-Green coalition, which is now expected to last out its parliamentary term until September 2002, the date of the next general election. Domestic demand has been a little sluggish, yet GDP growth will likely exceed 3% this year and next. Falling unemployment, meanwhile, is also helping the Germany economy, with rates expected to decrease from 10.2% to 8.7% this year. The employment outlook is not as rosy in the former East Germany, where weakness in the construction industry is keeping joblessness rates high.

Ireland

The continued growth of Ireland's economy is straining the labor pool and bottlenecks are occurring in certain sectors, especially the unskilled labor areas. Consumer prices are at record highs, the result of strong domestic demand, high oil prices, and a weak euro. Meanwhile, the European Central Bank has warned Ireland that it should rethink its planned tax cuts to avoid exacerbating inflation.

Italy

Italy's GDP growth is up considerably this year over last year's 1.4% rate, boosted by low interest rates and strong demand for Italian exports. For 2000, GDP growth is forecast for 3%, while next year's growth rate should reach 3.7%. Nonetheless, the government will have to cut spending to ease the tax burden on individuals and businesses.

Luxembourg

The government finally lost its fight against the EU over taxation of nonresident savings, a decision Luxembourg views as a threat to its private banking industry. While officials worry that the outcome could ruin the banking sector, in reality any real reform of the sector would take a long time to implement, given that other non-EU countries in the private banking market, such as the US and Switzerland, would also need to pass similar legislation and that could take years. In the meantime, the country's financial health looks very good, with GDP growth predicted to peak at 4.7% this year, with inflation just under 1.5%.

The Netherlands

Implementation of a generously amended tax system in 2001, while highly anticipated by some, could spell higher inflation for the Dutch economy. Strong growth, coupled with low unemployment and high rates of consumer spending, are also aggravating inflation worries; however, a hike in interest rates by the European Central Bank would keep inflation manageable.

Portugal

The country's new government, in place since last October, has been criticized for not paying enough attention to domestic issues and allowing itself to become distracted with hosting the EU presidency. Prime Minister Antonio Guterres' popularity has slipped in recent months, while energy prices have risen. However, the government has promised an end to gas prices for the remainder of this year. Despite the discontent on the domestic front, the economy remains in good shape and exports are picking up.

Spain

The political blight on Spain's horizon flared again in July following a rash of terrorist attacks by the ETA, the Basque terrorist group. The attacks are intended to provoke Prime Minister Jose Maria Aznar into accepting Basque demands for independence-something Aznar vowed to not do during his term in office. The only good news seems to be that the attacks have not had any real negative effect on Spain's economy, which is forecast to grow 3.8% this year and 3.6% in 2001.