Investors must understand the implications of the euro before they can reap the benefit, say John Cronin and Fergus Gillen. John Cronin and Fergus Gillen are solicitors at McCann FitzGerald.
On 1 January 1999, Ireland will be one of the 11 member states that will substitute its existing currency for the euro, thus participating in stage three of the European Economic and Monetary Union (EMU).
Two council regulations establish the European legal framework for the introduction of the single currency. One of these, Regulation 1103/97, is directly applicable and binding in all member states of the European Union (EU), while the other, the Article 109 Regulation, will have direct effect only in those member states participating in stage three.
It is expected that non-participating member states – including the UK – will recognise and give effect to the monetary provisions contained therein, in accordance with recognised principles of international law.
Both regulations anticipate the introduction of domestic legislation by each member state to facilitate the introduction of the euro. The Irish government set out its position in the National Changeover Plan, the second edition of which was published in January 1998.
The plan reveals the timetable to be followed by various state agencies, such as the revenue commissioners and the Department of Finance – as well as private entities such as the banks and stock exchange – in converting their operations into, and providing their services in, euros. In addition, the plan anticipates the introduction of domestic Irish legislation. There has already been one new statute, the Central Bank Act 1998, which deals with the function of the Irish Central Bank in the new European system of central banks. A second Act is to be introduced this summer to facilitate such matters as redenomination and renominalisation of share capital of Irish companies.
Because of the UK's position outside of EMU, a full understanding of the implications of the introduction of the euro in Ireland is now required for UK persons with Irish subsidiaries, operations and interests.
Specific enquiries of UK and overseas clients include:
Is it possible to redenominate the share capital of an Irish company? At present, under Irish law, it is possible to change the denomination of a company's share capital from one currency to another by using a number of techniques, although there will be many cases where none of the currently available methods will be possible. But it is understood that the legislation to be introduced later this year will introduce a new procedure for redenomination of share capital – possibly by means of a director's resolution only.
Will Irish pound debt obligations be changed following the introduction of the euro? The National Changeover Plan confirms that all outstanding Irish government bonds, bills and notes which were issued in and are to be redeemed in Irish pounds will be redenominated into euros from the date of Ireland's entry into EMU, that is, from 1 January 1999. The EU council regulations provide that once the government of a participating member state has taken measures to redenominate its debt, then all other debt issuers may redenominate in euros debt denominated in that member state's national currency. Thus, Irish pound debt may be converted into euros prior to 1 January 2002. If it is not so converted, then, in accordance with the EU Council Regulation, they will become euro obligations on such date.
UK corporates seeking to acquire Irish companies ask whether euro due diligence should be carried out and what it will involve. The answer is yes and a detailed due diligence questionnaire can be provided.
At a time when greater co-operation, if not integration, between Northern and Southern Ireland is anticipated, the introduction of the euro in Ireland may interfere with such processes. In the past, the Irish pound and the pound sterling were linked and the Irish pound was accepted by many businesses in Northern Ireland. Even after the separation of the Irish pound and sterling, Irish pounds are often used by Irish businesses and accepted in the north.
This is facilitated, in part, by the fact that the Irish pound and the pound sterling are effectively the same, save that they do not have 1:1 parity. Although no euro coins and notes will be in circulation until 1 January 2002, at that time the euro will not be the same or similar to the pound sterling and there may well be an interruption in the acceptance of Irish currency in Northern Ireland.
Irish banks and other financial institutions believe that for a short period they may have some advantages over their British counterparts in seeking to procure new euro business. This stems from their considerable efforts to be fully equipped to carry on all principal forms of business in euros from 1 January 1999.
In addition, their own domestic legislative framework is more developed than the UK position. Notwithstanding that Irish economists remain divided regarding Ireland's participation in stage three, the Irish legal position regarding single currency is clear – new legislation is expected to facilitate business development in euros in Ireland.