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Considers the likely microeconomic effects of European Monetary Union (EMU) and the European Central Bank (ECB), i.e. impact on firm‐level incentives and performance. Believes that firms’ uncertainty will be reduced by “a more stable and prudent macroeconomic environment”, and that a strong euro will lead to lower interest rates, reduced transaction costs, the elimination of exchange rate risk within the EMU and therefore increased output, investment and competition. Accepts that firms may find transition costs expensive and that opportunities for fraud and errors will increase in the transition period. Identifies the sectors and types of firm most likely to benefit in the short term and recognizes the possibility of longer term problems which may reverse the competitive advantages.

Asks whether the introduction of the euro has added value to firms, noting that it has reduced imports, exchange rate volatility and transaction costs in member states; and stimulated European mergers and acquisitions and cross‐border deals, even though these may be hampered by nationalism, tax/legal differences and problems with language and culture. Constrasts trens towards consolidation with restructuring, divestment and downsizing in some companies; and looks at the effect of changes in euro values on manufacturing industry, prices and margins. Believes that uniform pricing will not be achieved until the euro is used by all firms in the region, buyers are able to act on price differentials and obstacles to eliminating differentials are removed; and explains why none of these conditions are met at present. Suggests that businesses should prepare for the greater complexity in themarketplace which also represents an opportunity for value creation.