In order to obtain economic convergence between the Member States a precise calendar has been established which is split into three stages:

1. June 1990
Abolition of capital controls

2. From 1994 to 1999
A transitory period to obtain the adoption of fixed parities between the different currencies. The European Monetary Institute was created. Independence of the Central Banks.

3. 1999
Functioning of the European Central Bank, the European Central Bank System (ECBS), irrevocable fixing of exchange rates, introduction of the single currency, and application of a common Community policy.

The States that take part in the third phase of the EMU will have to comply with five conditions:

— The public deficit may not be more than 3% of GDP.
— The public debt nay not exceed 60% of GDP.
— Inflation may not be greater than 1.5 points of the annual arithmetic average of the three countries with the lowest inflation.
— Interest rates may not exceed those of the three countries with the best performance in terms of prices by more than 2 points.
— Exchange rate stability. Participating countries must remain in the EMS for at least the two years prior to the start of Monetary Union without devaluing.

ADVANTAGES: Politically, Spain will benefit from increased confidence as it is on of EMU countries. From the economic point of view, it will have a stable currency, the cost to companies of transacting business and covering exchange rates will diminish, investment will be favoured and there will be lower interest rates. In addition, consumption should increase.

DISADVANTAGES: There will be no recourse to the devaluation of the Peseta in order to favour exports and reactivate the internal market. Complying with a 3% deficit rate could slow down public investment and investment in less developed areas, etc. On the other hand, adaptation to the Euro involves a cost to the Administration, to companies and to private individuals. There will also be a reduction in subsidies received from the EU.

The factors which could determine the value of the Euro might be: the rate of exchange of the market with respect to the ECU on the last working day before the 3rd. phase; the fixing of the conversion rates to the market value on the day that it is decided which countries will enter the 3rd. phase of the EMU; the average (weighted or not) during a period of time, of the rate of exchange with respect to the ECU of each currency. The stability of the Euro will depend upon the currencies to which it relates (U.S. $, Yen, Swiss Franc.), upon the rates of interest in relation to said currencies and, upon the economic cycles of the countries in the EMU in relation to that of the remaining countries. The Euro will fluctuate with respect to the other currencies, although with respect to the U.S. $ and the Yen it will do so to a lesser extent than at present. The rate of exchange of the Euro with respect to third party countries will come about by fixing the rate of exchange of the Euro with respect to the currencies of the countries that make up the single currency. It will be the market which establishes the parity of the Euro and the currencies of third party countries.

The ECOFIN (Council of Ministers of Economy and Finance) will define the general lines of exchange rate policy, taking into account the opinions of the ECBS and it will be up to the ECB to apply said policy. The disappearance of the Peseta will take place on 1/1/2002 at the latest, to coincide with the entry into circulation of the Euro notes and coins. In January of 1999 the Peseta-Euro rate of exchange will be fixed and will be unmoveable as from this date. The estimated rate of exchange will be 167 Ptas. =1 Euro. The name Euro was adopted at the proposal of Germany during the European Council held in Madrid in December of 1995. The ISO code for the Euro will be EUR.

The 3rd Phase will involve the creation of the European Central Bank which will adopt the monetary policy of the collective group of States and the creation of a single currency for all of the countries in the EU. However, the divergences between the economic indicators and the different responses at a social level that were generated by the EU (Danish referendum of June '92, social protests in France at the end of '95) cast a doubt on the calendar that was agreed in Maastrich.

The ECB began to function on the 1st June 1998. Up to the launch date of the Euro (1st January 1999) the ECB will basically be entrusted with controlling the rates of exchange of the 11 countries that will adopt the single currency from its inception, in order to avoid speculators taking advantage of this period of transition and to prepare conditions for the unification of the monetary policies of the Euro countries.

The control will take place in coordination with the corresponding national issuing banks. The ECB must define its organisation chart and increase current staff levels in the European Monetary Institute, the organism which will replace the ECB.

The institutions were created in order to bring about an "ever-closer Union" of European nations. As the responsibilities of the Union have increased, so have the institutions grown in both size and number. During the first twenty years:

- The Commission has set about proposing
- The Parliament has set about passing judgement
- The Council of Ministers has set about deciding and
- The Justice Tribunal has set about interpreting community Law.

During the last twenty years the Parliament has developed to the extent of being elected by direct suffrage and has acquired new powers, the European Audit Office has been created, the European Investment Bank has become an important source of financing for economic development, the Social and Economic Committee has allowed for debate and cooperation between social partners and, most recently, the Regions Committee has been set up to promote regional interests and to represent regional diversity.

These institutions work closely together, cooperating in a constructive manner for the benefit of all the citizens.

This is the system of payments that the single monetary policy will maintain as from 1/1/1999. It is made up of two elements: a mechanism for settling gross payments in real time and a computer connection system which will link national systems. Its name is derived from "Trans European Automated Real Time Gross Settlement Express Transfer".

The levels of Value Added Tax (V.A.T.) in the different Member States should converge to the same value, establishing a common value added tax system. A Community F.I.N. (Fiscal Identity Number) will also be established (the normal fiscal identity number preceded by a code for the Member State). To mitigate the possible differences in the trade balances between the Member States, the Law foresees that the differences in V.A.T. between the different countries should be compensated by means of a central account according to whether a country is a net importer or exporter.

Companies and the Euro
Depending upon different factors (level of internationalisation, suppliers, clients, size, market position, effects of image, etc.), each company should set the rhythm and the extent of their adaptation to the Euro. To do this they should plan correctly, analysing the repercussions in the different areas of operation, studying the costs, etc. The company may opt for implantation a): from the beginning of the transition phase (4/01/1999), except for cash operations. Adopt or not? B): Between 1999-2001, with progressive implantation. C): As from 1/01/2002 with the definitive incorporation of the Euro.

Advantages to the companies
Low interest rates will stimulate investment, so companies will be able to finance themselves at a longer term. The stock markets will develop more, favouring the issue of fixed income stock in large companies. In addition, the lowering of interest might favour variable interest rates, which will be of benefit to companies that are quoted on the stock exchange (for example in the event of increasing capital). Exchange rate risks in countries within the EMU will disappear., reducing costs. Community means of payment will tend to homogenise, providing greater security and speed and reducing costs (transaction and valuation days). The greater transparency of prices will make generate cheaper imports and an increase in competition between suppliers.

Disadvantages
The increase in competition could mean loss of market share in national markets. Quality levels could rise whilst prices or price/quality ratios drop. The technological level of products and services should tend to unify. On the other hand, the company will compete in a market with different fiscal pressures, social costs, union/employers agreements, etc. "Political" devaluation will no longer be of use in order to become more competitive. In principle, exports to third party countries will be affected by a high rate of exchange, which will force companies to reduce their costs to the maximum. Imports will tend to become cheaper

Retail companies will be the most affected as they will have to adapt to the change in six months and will have to operate in two currencies. There is no need to design different invoice procedures for Pesetas and Euros, as long as the currency that is being used is clearly stated. There will be problems with vending machines, cash registers, etc. Credit cards may solve this problem.

Companies should show their Euro prices with two decimal points, which means very precise rounding up is required in order that products remain competitive. They should, in addition, bear in mind psychological prices. They can opt for a policy of informing the consumer as to how the price has been converted to Euros. As the single currency starts to circulate there will be a trend towards greater transparency and the consumer will be able to compare the price of products more easily. This new market creates new business opportunities, which should be taken into account when deciding commercial policy.

Prices need not necessarily be the same in countries within the EMU. In fact, different prices exist within the same country. However, the Euro will make price comparisons easier, which could mean a trend towards the homogenisation of prices.

During the period of coexistence between the Peseta and the Euro prices will almost certainly be shown in both currencies, although this is not obligatory. It is estimated that initially there will be a rise in prices as they will be rounded up, although it should be remembered that one of the objectives of the ECB is to control inflation.

Psychological prices (9,999 Ptas), upon conversion to Euros, will have a direct influence. In this example, when the rate of exchange is applied it will become 60.96 Euros, which could mean 60.99 Euros if it is rounded up or 59.99 Euros if it is rounded down. In some cases, the psychological price could lead to modifications in the product, in its presentation, in the value added chain, etc.

Payment orders (transfers, standing orders, etc.) will be in Pesetas until 1/1/99. Between this date and 31/12/2001 they may be in Pesetas and/or Euros. As from 1/1/2002, only in Euros. A cheque issued in Pesetas before 2002 and cashed after 30/06/2002 will still be valid (if the cheque itself is legal) and will be paid in Euros.

Both companies and individuals may do their accounting in Euros as long as their books and ledgers are kept in the same currency (once the euro has been adopted they may not revert to using the Peseta). All entries, books and ledgers must be in Euros.

That is to say, the exchange rate differences that arise from the change to Euros, contracts and exchange rate operations, expenses deriving from the introduction of the Euro and differences produced from rounding up or down will all be reflected in the results. Debts in foreign currency for the financing of real estate construction can be activated. Operations that are identified as the extension, improvement or renovation of a real estate property should be accounted for at the greater value.

The inclusion of provisions for the costs derived from the change to Euros will be allowed, as long as the risks or costs are identified as regards their provenance and the closing date of the account. The risks or costs must be probable or real but undetermined in terms of their amount or when they are produced.

The introduction of the Euro might have repercussions on the valuation of some fixed assets, given that their useful life will be shortened (vending machines, cash registers, hardware and software, etc).

It is recommended that new contracts that are signed, particularly with third party countries, should include an additional adaptation clause similar to the following:

"In the event that during the effective period of this contract the local currency should become the European currency (Euro), in substitution of the Peseta, the only legal means of payment and settlement of the contractual obligations agreed herein will be the new European monetary unit as from the day on which said substitution takes place".

During the period of simultaneous coexistence of the Peseta and the Euro,a right to choose may be contractually agreed (payment in Euros or in Pesetas).