Has NECC ever considered voluntary dual pricing?

The National Euro Changeover Committee has just published the Dual Pricing Guidelines. In spite of the clear indications of the risks that compulsory dual pricing brings with it, the NECC still insists on compulsory dual pricing. To add insult to injury, a committee spokesman gave the impression that all social partners are in agreement with this.

The NECC has known the position of the Chamber for Small and Medium Enterprises - GRTU from the very beginning. In fact, I had personally tabled a document in one of the task forces meetings, also attended by a NECC representative, which clearly stated:

"The matter has so far been discussed on a generic basis. However, different sectors have different needs.

"One needs to seriously consider giving an option on whether to have dual pricing or not. When dual pricing is not applied it should be enough to mark the price in euros on condition that the customers are provided with the conversion cards provided by the NECC. There are also other options such as shelf-edged labels and price conversion posters

"The effects of the dual vs voluntary approach to dual pricing should be considered and analysed.

"There are significant effects on costs with respect to dual pricing."

In spite of this, certain members decided to communicate otherwise for their own reasons. Not only, but they are trying to give the impression that the issue of voluntary dual pricing was never on the table. In the belief that everyone is in agreement or that there are no consequences to compulsory dual pricing, misinformed persons endorsed what was proposed to them by NECC, probably without even considering the voluntary option.

The difference in having voluntary as opposed to compulsory dual pricing is clearly seen by comparing the consumer price changes in Germany and France (voluntary) to those in Portugal and Greece (compulsory). (See table above.)

The euro in the first wave countries was adopted in 2002. The table above compares one month before and two months after the introduction of the euro to the same period in the previous year. It is crystal clear that the voluntary dual pricing countries had better results.

Studies on countries like Portugal, as opposed to others, provide ample evidence that price changes were more frequent in January 2002 or in the first quarter of 2002. This may be an indication of the significant costs, which induced bunching of prices during that month.

The counter argument to this has always been the case of Austria which, yes, did have a compulsory period but in line with the recommendation that this should be the shortest possible period. They had compulsory dual pricing for two months before and two months after the introduction of the euro. The NECC has gone to extremes with, unfortunately, the apparent blessing of the government.

There are two main effects of this decision, which will be another blow to the already suffering market:

¤There are added costs to businesses, which they will need to recover.

¤In consumers' minds it will set old prices, which will not be comparable to the euro price at a later stage. This will have the result of again creating the Italian scenario and lead to a perceived inflation that will damage the functionality of the market.

With respect to my first point, it seems that, once again, the NECC is failing to recognise that its proposals will lead to costs being incurred by businesses. Any business person or a person with some financial background can understand that when we refer to costs it is not just the result of buying something or not but it could also mean the utilisation of resources and administrative costs. Employee and employer time are a cost in themselves too. There are already enough costs that will be inevitable when adopting the euro and no one is contesting these because they are necessary for the operation of the businesses. However, why is there this obsession of harassing businesses and make them incur further costs even prior to the actual introduction of the new currency?

To better explain the second point made above, we can have a look at the Italian example. People were bombarded with prices prior to the euro conversion to the extent that until a few months ago the Italian media was still featuring such prices. Hence, the Italians compare prices in euro (now) to prices in Italian lira (four years ago) notwithstanding economic factors occurring in the intervening period and which people tend to forget. What the Italian media tried to transmit is totally incorrect. In fact, the increase in prices in Italy as a result of the changeover only amounted to about 0.2 per cent and one should note that in converting prices from national currency to the euro the percentage of SMEs opting for different methods were classified as follows:

¤converted prices some upwards and some downwards - 25 per cent

¤converted prices on a neutral basis - 66 per cent

¤converted prices upwards - three per cent

¤converted prices downwards - seven per cent

The above clearly indicates how incorrect are the assertions that the euro led to higher prices in Italy. Many mention the capuccino and certain restaurants. First of all we do not live only on capuccinos and restaurants. However, not even the capuccino story is completely true. Many fail to remember that there were two prices for the capuccino and other coffees. If one had to compare the prices of both, well the increase will not be the one indicated. With respect to the restaurants there was an increase in some (not all) restaurants in city centres. Even here, however, many tend to forget that due to the increase in certain prices, because of other economic factors, restaurants were likely to incur higher costs and hence had to reflect that in their prices.

Where price increases seemed high, the market rules of demand and supply dominated. In fact, many were those that had to put lower prices.

Misinformation could only cause hiccups to the Maltese markets, which it definitely can do without. Such risks come about when prices are unstable mainly because of government-induced costs and also given the water and electricity surcharge. The prevailing 3.11 per cent inflation makes this amply clear.

So does the NECC want to have a system that will give rise to people having the wrong perception of the euro, with tremendous consequences on the market!? Is the NECC seeing the whole picture or just part of it?

Mr Buttigieg is the GRTU's spokesman on the euro and director of Erremme Business Advisers, a financial management, business and management consultancy firm.

rmb@erremme.org