Common Currency Influences Virtual Marketplace Growth

March 1999
By Mark H. Kagan

European Union remains focused on forming a single market without legal and regulatory barriers.

The introduction of the euro is expected to give a significant boost to the already healthy expansion of electronic commerce throughout Europe. The priorities of governments and regulatory bodies on the continent, however, will continue to be concentrated on eliminating obstructions to emerging opportunities and establishing a predictable legal framework that will apply to all members of the European Union.

Government representatives offer few concrete projections about how the euro will affect the growth of electronic (e-) commerce in Europe, but European Commission officials point out that until actual bank notes and coins are issued in 2002, the euro will be available electronically for all electronic transactions. Commission members anticipate that this will have a significant stimulating effect on e-commerce. Individuals and businesses will be able to carry out their transactions in euros, while companies will not be compelled to offer or denominate their products and services in the various European currencies.

“Electronic money is not only the lifeblood of electronic commerce, but also has the potential to replace a sizable share of cash payments, notably during the period before euro notes and coins are available,” European Commissioner for the Single Market Mario Monti states. The Single Market has evolved from the original “common market” of the European Community and allows for the free movement of goods and services across the borders of its member nations. “The widespread use of electronic money will … add a major new dimension to the Single Market for financial services, electronic commerce and the single currency, [which will be] of benefit to consumers, business and the European Union’s competitiveness.”

The European Union (EU) is the umbrella organization that is responsible for security and justice affairs as well as the commercial affairs of the European Community. The European Union has five governing bodies: the Council of Ministers, the European Parliament, the European Commission, the Court of Auditors and the Court of Justice. The commission is the administrative arm of the union and is headed by 20 commissioners who are nominated by their respective countries and approved by the parliament

Commission officials affirmed that the European approach to e-commerce outlined in the commission’s April 1997 communication still applies. This approach “embodies two guiding principles,” Hugo Paemen, the European Union’s ambassador to the United States, explained in a March 1998 speech to information technology executives. “Industry must lead, and [there must be] no regulation for regulation’s sake.” He emphasized that one of the initiative’s principle objectives was that e-commerce should be “the engine for further market integration and a boost to Europe’s competitiveness.”

The commission estimates that more than 400,000 jobs in information technology-related enterprises were created between 1995 and 1997 within the EU, and that one in four new jobs is derived from these activities. It also estimates that there are 500,000 unfilled jobs requiring information technology-related commerce skills and that 60 percent of these are in small- and medium-size businesses seeking to develop their e-commerce capabilities.

Since the initiative was issued, the commission has taken a number of steps to encourage e-commerce by removing or reducing barriers within the European Commission. Commission officials say that deregulation of the telecommunications industry in Europe has already led to expanded services and a reduction in costs. However, the commission has identified legal and regulatory concerns as the most challenging obstacles to expanding e-commerce in Europe. These issues involve privacy and protection of personal information, electronic authentication, taxation, domain names, legal jurisdictions and applicable law, and liability.

The EU Council of Ministers and the European Parliament have adopted a number of e-commerce-related directives that the commission put forth. The Council of Ministers is the ultimate decision-making body, composed of each member country’s own ministers responsible for the issue being discussed. The European Parliament is a directly elected body that has evolved from a largely figurehead institution into an organization that has co-decision powers with the Council of Ministers.

The directives will be implemented by EU member states and will include a directive on a transparency mechanism that covers all of the draft national rules directly affecting information society services. It likely will require that the commission be notified about such draft rules and that the rules must be reviewed with the other member states to ensure their compatibility with the free movement of services and the country of origin control principle. In this way, fragmentation of the Single Market through diverse legislation can be prevented, a commission official says.

Another directive on the protection of personal data establishes “a clear and stable regulatory framework to guarantee both a high level of protection for the privacy of individuals in all member states and the free movement of personal data within the European Union.”

The commission released a number of regulatory proposals last year to establish EU-wide directives that would help build consumer and business confidence in the use of e-commerce. The organization suggested instituting a legal framework for the use of electronic signatures to assure that they are legitimately recognized throughout the EU.

The body also supports establishing definite guidelines for trading in electronic (e-) money within the Single Market as well as harmonizing minimum rules so that institutions issuing electronic money are stable and sound. This directive would pave the way for nonbanks to issue e-money, thus enhancing competition, a commission spokesperson asserts.

Also offered was a proposal to establish “a clear regulatory framework for the marketing of financial services at a distance within the Single Market” for financial service suppliers. This initiative would be aimed at delivering “a high level of protection for consumers of retail financial services” that are marketed by telephone, mail or the Internet.

The commission also recommends establishing a coherent legal model for the development of e-commerce within the Single Market so that information society businesses are able to “provide their services throughout the European Union if they comply with the law in their country of origin.” The proposal covers place of establishment, supervision and transparency; on-line contracts; liability of intermediaries; commercial communications; implementation; and mutual recognition and derogations.

The perception that Europe is lagging behind the United States in e-commerce may have been true in the past, but commission members fervently believe it will not be true in the future. Ambassador Paemen stated to information technology executives last March in Washington, D.C., that Internet use is already higher among some members such as Finland, the Netherlands and Sweden than it is in the United States. In addition, Europeans are registering domain names three times as often as Americans. He also pointed out that 33 percent of Europeans who had access to the Internet used it to trade on-line, compared to only 22 percent in the United States. Commission officials affirm that these figures have only improved from the European standpoint during the past year.

Paemen also noted that “while the use of paper checks is still commonplace in the United States, Europeans are embracing e-money. In Germany, 20 million multipurpose e-money cards (Geldkarten) are already in use; in Spain, five million [such] cards have been issued. These cards work exactly like cash so that transactions do not involve shifting funds between bank accounts.”

One official at the Washington delegation of the commission believes that the Internet will provide “a competitive advantage to those companies that use the Internet as an additional means to offer goods and services to consumers, provide information and help facilitate business transactions.” Therefore, it would be “in the interest of companies offering their goods and services in euros over the Internet to increase their presence on the World Wide Web and for companies not yet doing business on the Internet to get there as fast as possible.”

Willy Helin, a spokesperson for the delegation, states that the use of the euro in electronic transactions is already “a fact of life” for businesses and consumers, and, as a result, this would facilitate the expansion of e-commerce in Europe in the years ahead.