The whole economic rationale for the euro has to do with reduced transactions costs and economies of scale from expansion of activity. Yet only a quarter of companies expect to develop new markets with the highest responses coming from the Mediterranean countries. In a general way, SMEs accept that the euro will bring increased competition and greater trading opportunities within the common currency zone. They also recognise that purchase and selling prices are likely to fall though companies in Ireland, Spain and Portugal, rather strangely, take the opposite view. The latter risk being disappointed in that the degree of price differentiation across Europe is still huge and there is a very real prospect that these differentials will be eroded resulting in a squeeze on manufacturing margins.
Increased competition is already evident and prices of internationally traded goods are falling.
So far the impact of the euro is not particularly obvious but this may change, especially after 2002. The medium-term outlook is, therefore, for a further boost in competition and continued downward pressure on prices. In Ireland, the pre-entry debate, to the extent that there was one, tended to be dominated by academic contributions on what constituted an optimal currency area. The decision of the UK to opt out, meant that Sterling would continue to fluctuate resulting in exchange rate uncertainty for a significant part of Irish industry, notably the traditional more labour intensive sectors. A weak pound Sterling would exacerbate the situation.