WRITTEN QUESTION E-4066/00

by Erik Meijer (GUE/NGL) to the Commission

(10 January 2001)

Subject: Price increases as a result of the introduction of the euro and of rounding up when converting old prices

According to a study carried out by the Faculty of Economics at the Erasmus University in Rotterdam, prices for everyday purchases will rise on 1 January 2002 or shortly after by between 5 % and 10 %. Prices for cars and houses will also rise. The reason for this is that salespeople always use round figures, such as 100, 99,9 or 99,5. Every time the old national currency is converted into euros, they can achieve this by rounding the price either down or up. It is expected that in nearly every case they will do the latter. Salespeople nearly always will add something to the old price in order to arrive at an eye-catching amount.

In the light of this:

1. Does the Commission have information from other studies which confirm the results of the Dutch study?

2. Does the Commission have information from other studies which would contradict this conclusion? If so, what arguments are used by these studies to conclude that no major price rise above the annual norm can be expected?

3. What does the Commission propose to do, in cooperation with the national authorities of the 12 Member States concerned, to counteract the emergence of a price discrepancy in the first half of 2002, e.g. by laying down rules on the rounding up or down of prices to ensure that average prices remain stable?

4. How does the Commission propose to prevent unusual price increases occurring during 2001 by way of an advance on rounded-up euro prices in 2002?

5. Has the Commission already developed ideas on what should happen if an abnormal price increase cannot be avoided? What provision will be made in that case for compensation in terms of pay and allowances so as to maintain the purchasing power of the great majority of people who are dependent on these sources of income?

Source: The Dutch newspapers De Telegraaf and Rotterdams Dagblad of 7 December 2000.

Answer given by Mr Solbes Mira on behalf of the Commission

(27 February 2001)

1. The Commission is not aware of any economic study on the matter. The authors of the Dutch study have, in any case, formally challenged the way in which their conclusions were presented in the press.

2. Competitive pressures among supermarket chains and the like will oblige the leading players to arrange the changeover to euro pricing so that consumers do not suffer. Similarly, local shops, which benefit from customer confidence, will do their utmost to ensure that their customers cannot accuse them of raising prices unexpectedly and do not abandon them for supermarkets. Several market leaders in a number of countries in the euro area are even planning to freeze prices for several months at the end of 2001 and the beginning of 2002. Also, a majority of shops in the participating Member States already practise dual pricing and their numbers will increase steadily as the different deadlines approach. Under the auspices of the Commission, an agreement has been reached between consumers and businesses on use of the euro logo with a view to promoting voluntary dual pricing and application of best practices. The agreement is in force in most Member States in the euro area.

Dual pricing allows consumers and, where appropriate, specialised national or regional control bodies to check that there are no hidden price rises on the occasion of the changeover to the euro. It was with this in mind that the Commission also advocated the setting up of local observatories for monitoring the introduction of the euro (Article 2 in particular of Recommendation 98/228/EC of 23 April 1998(1)), something which has been done in most Member States in the euro area.

Lastly, the early setting of euro prices in the third quarter of this year, called for by the Commission in its Recommendation of 11 October 2000(2), will also help to achieve this same objective. The problem, if there is one, would probably, therefore, be confined to the sectors with little exposure to competition where some shops would not introduce dual pricing.

3. The freedom to set prices is a basic principle underlying the operation of the single market. By contrast, the rounding rules for conversion from national currency units to the euro are laid down in Council Regulation (EC) No 1103/97 of 17 June 1997 on certain provisions relating to the introduction of the euro and are mandatory. Businesses must, therefore, comply with the rounding rules when applying dual pricing. Together with the signatories to the euro logo agreement, the Commission is looking into ways of reinforcing the agreement as regards overall price stability along the lines of the rules in force in Spain and Ireland. Measures permitting rapid monitoring of price changes in early 2002 will also be examined with the Member States.

4. Any price adjustments will primarily affect, on a one-off basis, products and services for which psychological (or round) prices are set. New psychological prices in euros may involve upward or downward adjustments. There are no grounds at present for claiming that there will be a uniform upward adjustment. Historical precedents (e.g. the decimalisation of the pound sterling) did not produce a significant upward movement in prices.

5. The Commission does not believe that such a risk exists. If there is a short-lived increase in prices, something which the explanations given above and surveys among sectoral associations would seem to rule out, it will be very small, with any upward adjustments being statistically offset by any downward adjustments. There would not, therefore, be any inflationary movement, this being defined as a continuous rise in all prices. Accordingly, it is unlikely that such a cyclical adjustment in prices could jeopardise individuals' purchasing power.

(1) OJ L 130, 1.5.1998.

(2) OJ C 303, 24.10.2000.