Exporters view euro nervously; Traders wonder if Europe will shun American products; Still others are unsure; Many expect euro to cut exchange costs, simplify pricing; International trade

THE BALTIMORE SUN

It was mid-1997 and First Maryland Bancorp's Joe O'Sullivan was phoning corporate clients to see if they had an interest in a seminar on the proposed European Monetary Union, slated to go from plan to reality Jan. 1, 1999.

In making his inquiries, O'Sullivan, managing director of the banks' foreign exchange business, referred to the union by its acronym, EMU, pronouncing it -- like everyone else -- as "ee-moo."

"One of my first phone calls was to a young man who wanted to know why we were making a presentation on the alternative white meat," O'Sullivan recalled, laughing.

Back then, the client might be excused for confusing the nickname with emu, the big, flightless bird of Australia. But no longer. The European Monetary Union's new currency, the euro, made a strong debut last week.

And that has business leaders in Maryland and the rest of the country wondering whether the new currency -- and the cohesive market it's designed to create -- represent an opportunity or a threat to American firms.

While the euro's birth garnered lots of attention, the transition is largely transparent for the typical U.S. consumer or investor.

Although it's a bookkeeping mechanism for international fund managers, the euro will not appear on brokerage statements, said George Murnaghan, executive vice president of Rowe Price-Fleming International Inc., the international investment arm of Baltimore's T. Rowe Price Associates Inc.

But for U.S. international traders it's probably too early to say how things will play out in "Euroland" -- the 11 European countries that have adopted the euro as their currency.

But theories abound.

"I think it's a very important thing. I don't think of it as a negative thing," said Stuart Esler, European sales and marketing manager for Millennium Inorganic Chemicals, a subsidiary of Millennium Chemicals Inc. that operates a plant at Hawkins Point. "I see it as a positive move."

The local plant makes blends of titanium oxide, used as a whitener in paints, plastics, paper and cosmetic products, such as toothpaste. The local Millennium Chemicals plant exports to Europe and other countries and the company also has plants overseas.

Esler believes the euro will create business opportunities for U.S. exporters for several reasons.

First, the single currency will make it less likely that prices for the same product will vary from country to country. Such uniformity could spur spending, since customers won't hold back as they try to ferret out the best deal.

Second, the business of U.S. companies will be streamlined, since they will only have to worry about a single exchange rate: the dollar vs. the euro. That also will mean "banks won't be taking quite as much of our money for each transaction," said Esler.

However, since euro countries should find doing business among themselves easier, it's also possible that "the Europeans will look inward," preferring to buy what they need within their own market, Esler said.

Such an inward move is scary to some U.S. economic experts, since the EMU truly is a big bird: 380 million strong, compared with 270 million people in the United States.

Most of Maryland's exporters -- which tend to be small- to mid-sized companies -- insist on doing business in dollars, said George D. Mickalonis, managing director of the Baltimore's World Trade Center Institute Inc., which works with more than 200 regional companies that do business abroad. That means the new euro shouldn't have much of a short-term impact.

European customers are willing to pay a premium for U.S. goods since they're perceived to be of higher quality, Mickalonis said.

At least for now, many Maryland companies will likely see no change at all. McCormick & Co. Inc., the spice-maker in Sparks, declined to be interviewed for this article because it's in a Securities and Exchange Commission-mandated "quiet period" before its fourth-quarter and year-end earnings are announced Thursday.

But analyst Judith DeHoff, who covers the company for Legg Mason Wood Walker Inc., said the euro won't have a big impact on the firm. Less than one-quarter of its sales come from Europe.

"That's just my gut reaction," she said. "The jury's still out on most industries, but logic doesn't dictate that it should" make a difference.

Loral Orion Inc., the satellite services company with a major facility in Hanover, Germany, had to change its billing software, but "other than that, we're sitting tight," said Lisa Koppel, public relations manager for the Rockville company.

Black & Decker Corp. did not respond to requests for comment. However, Prudential Securities Inc. analyst Nicholas P. Heymann, who said B&D; gets 34 percent of its sales from Europe, said the Towson company could be a beneficiary of the euro.

The reason: It manufactures in the United Kingdom, which is a lower-cost and more flexible economic environment than Germany, the home of Bosch, its chief rival. That would allow it to sell its products across Europe at a lower relative price than rivals in the euro zone.

"It's an equalizer in terms of pricing," Heymann said of the euro. "And with lower costs" from the productivity gains it's made, coupled with the low-cost environment of the United Kingdom, B&D; should enjoy a price advantage.

Some observers think the changeover to the euro could be felt by U.S. companies. Uniform pricing across Europe could force smaller U.S. companies that did business only in dollars to price their wares in euros, thus exposing themselves to the vagaries and risks of the foreign-exchange markets.

But any worries about a preeminent euro may be premature. Big structural -- or potential -- changes in the world's capital markets almost always are met with either great fear or great fanfare, said Mark Weisbrot, a research associate at the Economic Policy Institute in Washington. Often that fanfare proves to be more hype than reality.

It's possible the EMU -- which faces major obstacles in becoming a cohesive market -- could end up laying a big egg. Going from France to Germany isn't like going from Maryland to Pennsylvania, where the culture and language are largely homogenous.

Most European countries have their own language and culture -- and typically an ingrained nationalism that has in the past thwarted attempts at overall integration, said Peter Morici, professor of business at University of Maryland at College Park.

Another negative is that Britain, an important component of the European Economic Community, has for now elected to watch the EMU unfold from afar, declining to swap its pound sterling for the euro.

"There are some real challenges," said Jerry Collier, a senior vice president and managing director of First Maryland's corporate treasury and capital markets division. First Maryland, which has 268 related branches throughout the mid-Atlantic region, is a subsidiary of Allied Irish Bank PLC of Dublin, Ireland, an EMU member.

There are other potential impediments to a strong EMU, too. U.S. companies went through painful rounds of downsizing in the late 1980s and early 1990s, emerging as the most competitive in the world. But many European countries, such as Germany, have strong labor unions and laws that make it hard to fire workers. Japan, not an EMU country but a global economic leader, has fostered a corporate culture that also frowns on firing workers.

As a result, many companies in Europe and in Japan are not competitive in cutthroat global markets.

In the sometimes hard-to-fathom workings of the global capital markets, the ability of U.S. firms to fire workers has actually slashed unemployment in the United States, while the inflexibility of many European nations and Japan has caused unemployment to rise, Morici said, pointing to numbers from the Bureau of Labor Statistics.

In 1979, when Japan and Germany were generally considered the most competitive economies in the world, unemployment stood at 5.8 percent in the United States, 6.1 percent in France, 2.1 percent in Germany, 4.4 percent in Italy, 5.4 percent in the United Kingdom and 2.1 percent in Japan.

In the third quarter of 1998, the most recent figures available, unemployment had fallen to 4.6 percent in the United States, nearly doubled to 11.7 percent in France, more than tripled to 7.4 percent in Germany, edged up 15 percent to 6.2 percent in the United Kingdom, and more than doubled to 4.3 percent in Japan.

Some economists have speculated that, since the new European community is a bigger market than the United States, the euro will supplant the dollar as the world's major trading currency. That could mean higher demand for the euro currency and lower demand for dollars -- in turn, driving up the euro and driving down the dollar.

If that happened, it actually could be good for U.S. exporters, since a cheaper dollar makes U.S.-made goods more affordable overseas.

But the euro will only be as strong as the economies that underlie it, said First Maryland's Collier.

"The market will police that," he said.

First Maryland -- which offers many financial services to exporters and importers -- has positioned itself to be a long-term player in the Euroland market.

It overhauled its information systems, making them compatible with the euro, and resolving the so-called "millennium bug," or Y2K problem, at the same time.

First Maryland has a proprietary foreign-exchange trading desk in Baltimore and has access to Allied Irish's offices in Singapore, London and Dublin. Those four offices are staffed by a total of 60 traders. The ability of corporate and commercial clients to trade currencies round-the-clock helps these firms manage their "currency risks" -- that is, protect themselves against the unexpected swings in exchange rates, which affect firms buying or selling abroad.

"It's a 24-hour marketplace," said First Maryland's O'Sullivan.

Pub Date: 1/10/99

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