May 13 -19, 2002

For the first time since the fall of the Roman Empire, European countries now share the same currency. The Euro is now the official single currency of the Economic & Monetary Union (EMU). Its introduction undoubtedly represents a strategic challenge for businesses which can capture many real advantages in the new and common market of EU. To understand this new currency, its implications for businesses and Pakistan's relationship to the EU it is pertinent to first recall and trace the genesis ol European Union. Without understanding the spirit of the European dialogue, one may remain handicapped to understand the present economic and monetary developments in the EU and the future undercurrents as well.


Background: The industrial revolution in the 19th C. gave Germany a military advantage over France and it was not long before this superior power was being exercised. The Franco-Prussian war of 1870-1 sparked off a bitter enmity between the two countries that was to last for 75 years and give rise to two world wars. Not surprisingly the experience of these events played a major role in shaping political developments in Europe in the later part of the 20th.

In 1945 Europe lay in ruins. The technological advances spawned from the industrial revolution a century earlier had been used to fatten towns and cities with appalling consequences to human life and property. In 1945, after France had been invaded thrice in 70 years, Franco-German relations were at a nadir. In the immediate aftermath of the war Germany was divided into four zones. Furthermore, the balance of power in Europe had undergone a seismic shift; an economically strong and cohesive Western Europe was needed to counterbalance the growing threat of Soviet Russia.

ORGANIZATION FOR EUROPEAN ECONOMIC COOPERATION (OEEC-1948): In June 1947 the US Secretary of State, George Marshall, put forward a radical proposal for the US to finance the reconstruction of Europe. OEEC was set up to administer aid from the Marshall Plan and from 1948 to 1951 US$12.5bn was distributed to 16 countries.

The Council of Europe (1949): The roots of closer political integration were embedded in the Council of Europe, which was set up on May 5, 1949. The ten founding members were Belgium, Denmark, France, Britain, Ireland, Italy, the Netherlands, Luxembourg, Norway and Sweden. A year later Germany was also admitted. However right from the start, countries polarized into those that saw the Council as the beginning of a supranational body to which nation states would gradually abrogate part of their sovereignty and those, which saw its function as purely consultative. There are now 34 members of the Council of Europe but, as a vehicle for further integration, it did not prove as effective as its founders had had hoped it would be.

North Atlantic Treaty Organization (NATO-1949): In 1948 Britain, France and the Benelux countries agreed to take joint defensive action in the event of any renewed German aggression. In addition to mutual self-defence, the Treaty of Brussels included a loose agreement to cooperate on economic, social and cultural matters. A year later, this agreement was extended to include USA, Canada, Italy, Iceland, Norway, Denmark and Portugal and became known as NATO.

The European Coal & Steel Community (ECSC-1951): In the post-war years the French foreign minister Robert Schuman spearheaded the drive towards the construction of supranational institutions that would override national jealousies. At the end of his visit to Germany in 1950, Schuman delivered a dramatic press conference and announced his radical proposal of pooling of the French & German coal and steel industries. The idea was the brainchild of Jean Monnet who at the time was the head of the Commissariat du Plan de Modernisation et d'Equipement, the institution charged with rebuilding France's industrial base. ECSC was agreed in 1951 and came into effect the following year. It included six states namely France, Germany, Italy and the Benelux countries. The British government declined to participate. Its objectives were the establishment of a single market in these two basic industries and the formation of a uniform code of regulations governing production and competition.

The European Defence Community (EDC: 1952-4): In October 1950 the French Prime Minister, Rene Pleven, suggested forming an integrated European army. Subsequently a treaty proposing the formation of the European defence Community (EDC) was signed on 27th May 1952, which restored sovereignty to West Germany. However the French Assembly did not ratify the treaty and the move to set up EDC collapsed.

The European Economic Community (EEC-1957): The six ECSC members signed the historic Treaty of Rome on 25th May 1957 to set up a common market, which would be known as the European Economic Community (EEC). The treaty envisaged phased abolition of trade tariffs and quotas, adoption of common policies on agriculture and transport, and free movement of labour and capital. It paved the way for setting up of European Investment Bank and the European Social Fund. Its institutional framework was similar to that of ECSC and included a Commission, a Council, an Assembly and a Court of Justice.

However, as the six ECSC countries opted to form their own economic community (EEC) in 1957, the remaining seven Austria, Denmark, Norway, Portugal, Sweden, Switzerland and the UK pressed on with the establishment of the European Free Trade Area (EFTA). Franco-German Treaty of Cooperation of 1963 and the implementation of Common Agricultural Policy in 1968 were significant milestones for EEC.

In 1973 Britain, together with Denmark and Ireland, finally joined the European Club. Political democracy was a pre-requisite for full membership of the EEC and thus Greece, Spain and Portugal remained barred for many years until they had overthrown their military regimes. Greece became a member on lst January 1981 while Spain and Portugal were admitted five years later. The Community of 12 was expanded again in l995 when Austria, Finland and Sweden joined.

The European Monetary System (EMS-1979): Roy Jenkins, the president of the Commission from 1977-81, is largely credited with launching the European Monetary system. The EMS was formally launched on 13th March 1979 and involved eight of the nine EEC members with the UK opting out. A new common unit of account, the European Currency Unit or ECU, was introduced which was a cocktail of all the EEC currencies (including Sterling) mixed in proportion to each country's relative economic size. The idea of using a common unit of account dated back to the 1950s when the six original EEC / ECSC members formed a European Payments Union and used a European unit of account (EUA) equivalent to the same fixed amount of gold as one US$ to calculate intergovernmental transactions. Under the EMS, an exchange rate mechanism (ERM) was set up that allowed currencies to fluctuate 2.25% on either side of their central ECU rate. Italy, Spain and the UK were allowed a wider 6% band when they joined the EMS. When the cross rate of two currencies strayed outside the permissible bands, there was an obligation on both of the central banks concerned to intervene and bring the rate back inside the system.

Maastricht Treaty (1992): The Luxembourg summit of 1985 and the Delors report of 1988 had now paved the way for a single Europe. The Treaty of European Union was the centrepiece of the Maastricht summit in December 1991. It not only laid down the steps by which economic and monetary union (EMU) would be achieved but also included a Social Chapter and established the principle that eventually common foreign and defence policies would be adopted. In order to coordinate and monitor monetary policy, the individual central banks would form the European System of Central Banks whose primary objective was to maintain price stability. A European Monetary Institute (EMI) and a European Central bank (ECB) would be set up to oversee the move to a single currency. The treaty was signed in February 1992.

In order to merge into a single currency, the Euro, the individual Member countries had to meet the following criteria:

  • The budget deficit should be 3% or less of GDP.

  • The ratio of gross national debt to GDP should not exceed 60% of GDP.

  • Inflation should not exceed by >1.5% the average of the three best performers.

  • Exchange rates to be maintained within the permitted band of ERM for at least two years.

Long-term interest rates must not deviate >2% from the interest rates of the three lowest inflation countries.

Having met the laid down criteria for the proposed economic and monetary union, 11 states were declared eligible to move on to the third stage of EMU on lst January 1999. Only Greece was judged not to have met the necessary criteria but it was hoped that it might become eligible in 2001. The UK, Denmark and Sweden opted not to join the first wave. Stage III of the EMU was a transitional period during which member states gradually switched from their national currencies to Euro. From lst Jan 1999, the ECB took over monetary policy from the national central banks. On lst January 2002, Euro currency notes and coins went into circulation and national notes and coinage is gradually being phased out.


There are five European institutions: the European Parliament, the Council, the Commission, the Court of Justice and the Court of Auditors.

There are also two community bodies of an advisory nature: the Economic & Social Committee and the Committee of the Regions. The European Central Bank (ECB) plays a major role in the field of economic and monetary policy.

The European Council, which consists of the Heads of State or Government and the President of the Commission, and meets at least twice a year, is a political body whose purpose is to give the Union the necessary impetus for development and to establish broad policy guidelines.

The Union can act only within the limits of the powers conferred on it by the Treaties, to which the Member States have given their agreement through the ratification process, either by referendum or by parliamentary vote.

The Euronean Parliament: It represents the citizens of the member states and acts as co-legislator with the Council. The Parliament and Council jointly constitute the budgetary authority. The Parliament also exercises democratic control over the Commission's activities. There are 732 MEPs who sit not as national delegations but in political groups. Allocation of seats in the European Parliament is on the basis of population of member states. Its permanent seat is Strasbourg (France).

The Council: The governments of the member states are represented in the Council. Together with the European Parliament it acts as a Community legislator and has budgetary authority. It is the lead institution for decision making on the common foreign policy and on police & judicial cooperation in criminal matters. The Council consists of one representative of each member state at ministerial level for the respective issues. The President of the Council is the Minister concerned of the member state currently holding the Presidency of the Union. Each member state holds the Presidency for a six-month term according to an agreed rotation.

The Commission: It was created as an independent body to represent the European interest common to all member states of the Union. It is the driving force in the legislative process, proposing the legislation on which the European parliament and the Council have to take a decision. The Commission is responsible for implementing common policies (like the common agricultural policy), administers the budget and manages the Community programmes. For the day to day running of Community policies and programmes, it relies heavily on national administrations. In external affairs, the Commission represents the Community and conducts international negotiations (e.g. in the WTO). The Commission is collectively responsible to the European Parliament. Its decisions are taken by a simple majority.

The Court of Justice: The Court is responsible for enforcing Community law. It has jurisdiction in disputes between member states, between the Union and its member states, between institutions and between private individuals and the Union. It can also answer questions about the interpretation of Community law raised by national courts in the course of a dispute being heard in such courts. The Court consists of one judge for each member state.

The Court of Auditors: It monitors the Community's accounts, examining the legality and regularity of the revenue and expenditure in the Community budget and ensuring sound financial management. The Court currently has 15 members, appointed for a six-year renewable term by the Council acting unanimously. The members direct the audit activities of the Court officials and draw up reports and opinions.

The Economic & Social committee: It consists of representatives of various economic and social interest groups, and issues advisory opinions to the institutions, e.g. as part of the legislative process. It currently has 222 members (between 6-24 members per Member State, depending on the size of the country).

The Committee of the Regions: It is another consultative body and consists of representatives of regional and local governments. It articulates the interests of the regions at the European level. It has the same number of members per Member State as the economic & Social Committee.

Euro member countries:

Euro is the new currency of the EC. Since 1.1.1999, the new European Monetary Union is in force. The following 11 EU-states have introduced the new currency (Euro-11): Germany, Belgium, the Netherlands, Luxembourg, France, Portugal, Spain, Italy, Austria, Denmark, Ireland and Finland.

The four remaining EU-states namely Greece, Great Britain, Denmark and Sweden did not join the Euro and will probably join later.

These four currencies, that didn't join the European Monetary Union, were related to Euro under an exchange rate mechanism (ERM). The principal currency is that of the Euro. The exchange rates of other EC-currencies were fixed to Euro in a way that can be altered with demand. The daily exchange rates were allowed to fluctuate in a standard spread from + / -15%. If the exchange rate any day reaches these limits, the respective national central banks and / or the European Central Bank must intervene. With purchases or sales, the course of the endangered currency is supported. Ensuring the price-stability of the Euro remains the foremost duty of the European Central Bank. So adjustments can be introduced by the ECB as to revaluation or devaluation of that currency against the Euro.

It is expected that the remaining four member states shall join the European Monetary System fully and participate in the exchange rate mechanism. The Danish Krone and the Greek Dram are participating in the ERM since 1.1.1999, but the Swedish Krone and the British Pound Sterling are not yet associated / involved.


Step I: Since 1.1.1999 is the Euro as European currency in vogue. The European Central Bank, based at Frankfurt/Main, watches over the price-stability of the Euro. For the individual citizens, the introduction of Euro came in stages. In the first instance money-less payments, like payments by means of check, credit cards or remittances were made available in Euro.

Step II: Since January 1, 2002 new currency notes and coins of Euro have become available over the bank windows. Henceforth, Euro becomes the legal tender of Euro-11 states and their sole lawful means of payment. All banks, etc. as well as postage stamps of the member states would switch over to the new currency denomination.

SteP III: The Euro-states shall indicate the cut-off dates for the culmination and phasing out of their individual national currencies. For instance, March 1, 2002 represents the end of money circulation of DM in Germany. The two currencies DM and Euro will run in tandem during January and February but from the lst March, Euro and cent instead of DM and Pennies shall remain as a medium of payment. Nevertheless, whosoever had retained cash balances in DM could certainly exchange his/her amount with the banks later.

Euro notes and coins:

The Euro has arrived, so one can take the new currency now. The new Euro currency notes are available in the denominations of 5, 10, 20, 50, 100, 200 and 500 Euro. The citizens can also pay with the new coins. The coins range from 1 - 2 -5 - 10 - 20 - 50 cents as well as 1 and 2 Euro. This wide range of coins / notes makes smaller cash payments in future as simple as possible.

The European Monetary Institute, according to the terms of the Maastricht Treaty, has laid down the graphic and technical characteristics of the Euro banknotes and coins. Euro banknotes are identical in all countries of the Euro-zone, while Euro coins share a common "European" face and have one "national" face. All coins are, however, legal tender in all participating countries. Each denomination of banknote has a characteristic colour and size, for easy identification by all users including the visually impaired.

Euro exchange rate & conversion:

The official parity for the currencies is fixed and goes up to five positions after the decimal. All amounts are converted using the official parity rates. The parity itself cannot be rounded. The Euro- amount is rounded commercially on two positions after the decimal, rounding off therefore until 4, from 5 rounds up. Table I gives information over the parities:

Influence of euro on the economy:

1. Price-increases/Inflation? The changeover of the national currencies takes place under the parities stated above which neutralize the costs. Consequently, there will be no price-increases through the changeover.

Some people are afraid that the changeover to Euro might raise the prices. It greatly depends upon the competition in the economy. Following factors may be taken into account with reference to the question of price-increases:

  • The parities are precisely stipulated and must be kept by all. This is valid in the private as well as commercial arenas.

  • In principle free pricing prevails in the market economy. The free competition regulates the prices, through interplay of supply and demand.

  • There is little or no free competition with the public dues / services (like say, Parking Fee). However, the changeover to Euro after the assigned parities is valid also for the public goods. Any public authority, therefore, is not allowed to charge undue on account of adopting transactions in Euro.

2. Do old contracts need renegotiation? Old contracts continue to hold good and run further. These must not therefore be renegotiated. The amounts are converted automatically into Euro-amounts following the exchange rates under the parity scheme stated above. Within the EC, there is a principle of the continuity of contract. This means that all contracts remain valid after the beginning of the Monetary Union and shall remain unchanged after introduction of the Euro cash. With the introduction of Euro, of course other existing legal-rules, administration-files, judicial decisions etc. continue to remain effective.

3. Is Price-stability permanent? The Maastricht Treaty forms the basis for the stability of the Euro. Here, solid rules are laid down to protect the Monetary Union from high budget deficits of other Euro- states. The main task of the ECB is to ensure the price-stability of the Euro. In addition to the budget- discipline, there is the Stability & Growth Pact; the main purpose of which is the lasting protection of a strong domestic fiscal policy of the Euro-member states. The debt and fiscal deficit of each member state is monitored. Overstepping a certain percentage of the laid down criteria by a member state may invite a reminder, a reprimand or even penalties.

4. Creation of new iabs throuch Euro? The changeover to Euro will have no direct effects on the job- market. However, some hold the view that in the long term improved income conditions and perhaps the creation of new jobs is possible with Euro.

5. Influence of the Euro in the world economy? The European Economic & Monetary Union (EMU) has set up the second biggest capital market along with the USA. The Euro is a uniform currency for 290 million people today. The Euro can besides US$ become a major transaction-currency (trade- currency) in the future. Since the foreign trade of the Euro-area surpasses that of the USA, Factoring in Euro may also become popular.

6. Others: The world economy is becoming increasingly globalised. It marks some businesses as Global Players since they have distributed their production / marketing locations throughout the world. Through the common Euro Financial market, there are possibilities for the international trade to improve, as it reduces the exchange rate-risks within the European Monetary System.

The Euro as common currency can also facilitate increased mobility of factors of production. The tourism industry is likely to profit as do the students, trainees, etc. who stay / travel as part of their education.

Essential advantages of the Euro:

The following main areas should profit from the introduction of the Euro:

1. A new strategic advantace: The changeover to Euro should buttress the comparative & competitive advantage of the Euro states and present a strategic challenge to the rest of the world. Three factors are critical in this regard:

a.) Sound Public Finances: The Stability and Growth Pact requires low budget deficits and supports a strong and lasting economic growth with it. The countries which participate in the Economic & Monetary Union (EMU) will, therefore, endeavour to keep public finances close to equilibrium, which is expected to pave the way for lower taxes, and thus foster consumption and economic growth.

b.) Reduced inflationary tendencies on account of nominal convergence of the EMU economies, and price stability guaranteed by the ECB.

c.) Lower interest rates: Balanced budgetary policies and low inflation will contribute to maintaining short-term interests at low levels, which can have a direct positive effect on economic activity and consumption, and may also contribute to lowering long-term interest rates.

All this makes possible higher private investments, that like the experience in USA has shown are crucial, to reach a higher growth.

2. An opportunity for improved business: The new trading environment will usher in the following benefits:

a.) New Price elasticity: Price elasticity measures the sensitivity of consumers to a variation in the price. Since most of the EMU currencies (except the Irish punt & British pound) have a smaller value than the Euro, therefore the smallest unit of account in Euro, the cent, will have a greater value than comparable units. This reduces the potential price elasticity.

b.) Price transparency: Price disparities within Europe due to factors like cultural considerations, tax discrepancies, varied VAT rates (Table II) and different labour costs remained partly concealed because they were expressed in different currencies. The Euro now encourages price harmonisation by making it easier to compare prices of similar products between countries. The impact of price transparency will vary considerably according to the type of product and also the geographical zone. It is likely to be felt more sharply for capital goods than for consumer goods.

c.) Procurement-a broadened base of suppliers: The changeover to Euro provides strategic opportunities in terms of better sourcing and procurement. With the Euro, it becomes easier and cheaper to work with non-domestic suppliers. The elimination of foreign exchange risk within the Euro-zone, the reduction of cross-border financial transaction costs and administrative expenses related to foreign currency dealings, price transparency throughout the Euro-zone creates an increased competition among suppliers, makes imports cheaper, and brings a certainty in the procurement costs. There are now increased opportunities for companies to develop purchasing alliances or to create buying groups with other companies.

d.) A larger "domestic"EU-market: Particularly for direct marketing firms, those offering Electronic Commerce and those located in border areas, the potential size of the "domestic" market will increase. A single currency should make it easier and less expensive for businesses to reach formerly "foreign" customers. Catering to the needs of new customers in this enlarged domestic market may require adjusting products to respond to the tastes of all Europeans. Quality standards, national regulations, cultural differences or marketing considerations may lead to such product adjustments / adaptations.

e.) E-Commerce: The Euro creates great opportunities for the development of Electronic Commerce, as it offers the medium / currency to reach its full potential.

f) Lower prices: Hitherto, each time a product crossed a border, it entailed currency hedging and transaction fees to its price. The elimination of exchange risk, reduced transaction costs and the simplification of price comparisons could lead in some cases to cheaper imports. The consumers and trade alike are to benefit from lower prices.

g.) Enhanced competition in the financial sector: The Euro has created a single financial market and is expected to increase the size, liquidity and the specialisation of the market. Businesses will now be able to seek new opportunities for financing their operations and development.

3. Better financial instruments & Cash flow for businesses: The changeover to Euro leads to a simplification of treasury management for European companies. The major benefits include:

a.) Hedging costs eliminated: Most companies try to hedge their currency risk. Hedging methods bear a cost and can only serve to cover certain cash flows within a limited time frame. The changeover to Euro allows companies to eliminate hedging costs (often up to 1-2% of transactions), and save valuable management time by eliminating the need to track exposure and costs/benefits resulting from each transaction.

b.) Reduction in working capital needs: Most companies attempt to monitor balances in respective currencies to limit excess liquidity with small financial returns or to avoid the negative balances, which can lead to high overdraft costs. This monitoring requires almost daily work and interaction with the bank. The changeover to Euro allows companies to immediately include all payments in the company's main account, allowing for an immediate closing, to transfer amounts at a later date to suppliers thereby reducing the settlement period and to eliminate exchange fees on currency transactions.

c.) Easier access to low-costfinancing: Financing working capital and investments is currently a major challenge for all SMEs. The introduction of the Euro now leads to larger, more liquid and more differentiated capital markets. The banking sector is consolidated, with new financial products and services being offered to the consumers and improved opportunities for a broader investment base in Europe. The changeover to Euro, therefore, increases competition in the banking and financial sector across Europe, facilitates access to foreign banks for SMEs, expands the role of capital markets for SMEs by offering broader access to professional private capital providers leading to quotation on stock exchanges and ultimately reduces the number of bank accounts for companies.

4. Enhanced trade between member states: Over two thirds of European exports are intra-European and they will certainly benefit from the elimination of risk and lowered transaction costs within the Euro zone. International trade in the same currency lowers the expenses, which along with a related price-transparency promotes competition. Prices can simply be compared, and consumers or businesses can make better decisions. With little overheads / petty expenses because of no more monetary exchange, there arise cost advantages for the consumers and possibly bigger competitiveness for the EC- companies against non-Euro / EC businesses.

5. Incentives for structural reforms: The member states give up efforts to try with the help of national monetary measures their exchange rates or to regulate economic problems. Now they must manage more flexible markets so that manpower and capital can be transferred quickly there where they are used / needed. The businesses react to the reinforced economic integration, that Euro has brought about. International mergers and acquisitions might increase, as the business strategies become European.

6. Advantages for third (non-Euro) countries: The fact that trade and financial partners increasingly use Euro as international currency, provides a push to the exports from the countries of Central and Eastern Europe aspiring for EU membership. They profit from the better market access, lower transaction costs and the discontinuation of the exchange rate risk. In addition, strong and flexible competitive Euro-Markets license these countries the access to new funding sources.

The Euro is not an objective in itself. The real objective of Economic & Monetary Union (EMU) is to provide Europe with a currency, which is representative of its increased economic integration, and to foster its international trade. The European Union is already the largest economic area in the world with 31% of the world GDP, and has the largest share of international trade (20%). Euro has, therefore, fundamentally redefined the European marketplace by moving one step forward to a single European market as opposed to 15 national markets.

Trade environment in EU viz Pakistan:

  • The EU has harmonized its GSP and anti-dumping legislation, revised its tariff structure for rice imports, adopted public health and environment regulations, and other technical standards which shall require major adjustments and transformation in our industrial production and exports.

  • The EU has started resorting to use of non-tariff measures, mainly to protect its agriculture.

  • The issues of child and bonded labour, human rights, democracy, good governance, environment, IPRs shall be in the forefront of EU's future trade policies.

  • The Preferential Trade Agreements (PTAs) of EU are listed below:

i.) EEA - European Economic Area (EU + Norway, Iceland, Liechtenstein).

ii.) EFTA - European Free Trade Area (EU + Norway, Iceland, Liechtenstein, Switzerland).

iii.) Associate treaty with Turkey, Malta, Cyprus.

iv.) Associate treaty with Mediterranean states (Egypt, Israel, Palestine, Morocco, Tunisia).

v.) Associate treaty with central & east European states (Poland, Hungary, Czech republic, Slovak republic, Slovenia, Bulgaria, Romania, Lithuania, Latvia, Estonia).

vi.) Associate treaty with BCMY (Bosnia-Herzogovina, Croatia, Macedonia, Yugoslavia).

vii.) Associate treaty with ACP states (Afro-Caribbean-Pacific states, Lome Convention).

viii.) Associate treaty with OCT (Overseas Countries & Territories / old French colonies).

ix.) GSP provision for developing countries.

The major achievements in the last few years for Pakistan have been:

- No further antidumping action was taken against bed linen and grey cloth.

- Pakistan was placed on the permanent list of exporters of Fisheries to the EU. 36 export establishments are approved by the Veterinary Authority of Pakistan and are registered with EC for exporting Animal casings, and continue to export.

Export of basmati rice continues to EU unabated.

Pak-EU bilateral trade:

As evident from the statistics (Table III), although the balance of trade has in principle remained favourable to Pakistan, yet the level of bilateral trade during the last many years has generally remained stagnant:

Although EU did not place any economic sanctions on Pakistan following the nuclear detonations in 1998 and the military government, yet the bilateral economic relations and development assistance have thereafter slowed down. The relations have warmed up again following the 9/11 disaster and Pakistan's participation in the international coalition against terrorism. However, recently Pakistani seafood consignments have been put to 100% physical inspections following detection of contaminated shrimps at Rotterdam from Pakistan.

In December 2001, the EU notified Pakistan as eligible for its GSP scheme for states combating drugs. This has reduced the import tariffs on a wide range of Pakistani products in the EU market. It remains to be seen how effectively Pakistan seizes these new market opportunities in EU amidst growing international competition.

Total commitments for ongoing EC projects, predominantly social sector development, in Pakistan are around Euro 195 million. The EC's most important current involvement in Pakistan supports the Social Action Programme (SAP, now KPP) in the areas of primary education, eradication of child labour, primary health and population welfare, drug rehabilitation, sanitation / drinking water services.

Pakistani businesses seem to be little prepared for transition to the new European realities. A gigantic effort is required to overcome the rising input costs, undo the slow rate of industrial growth, raise the product standards to match EU quality, technical, environment and merchandise (including labelling and packaging) requirements, attract FDI / JVs and boost the sagging exports in the EU-market. Pakistani businesses including exports, financial and services sectors must gear up to tap the opportunities arising from the common currency of Euro and the Economic & Monetary Union, and reap maximum benefits for their individual firms and the country at large.

The treaty of nice (Dec. 2000) & enlargement of the EU:

The composition and operation of the European institutions and bodies were agreed in the 1950s, when the Union only had six members (Belgium, Germany, France, Italy, Luxembourg and the Netherlands). The Union has since undergone four enlargements and no consists of 15 member states (the six founding members plus Denmark, Greece, Spain, Ireland, Austria, Portugal, Finland, Sweden and the UK). Yet, apart from the introduction of direct elections to the European Parliament in 1979, there has been no major reform of the institutions since the founding of the EEC.

The Treaty of Nice marks a new stage in the preparations for enlargement of the EU to include countries of central and Eastern Europe, the Mediterranean and the Baltic. This Treaty, which amends the existing treaties, will enter into force once all Member States have ratified it, by parliamentary vote or referendum.

In all, 12 countries are currently negotiating accession to the EU: Bulgaria, Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, Slovakia and Slovenia. In addition, Turkey has been recognised as a candidate for membership.

The Nice reforms have prepared the Union's institutional framework for enlargement, but there is clearly a need for a wider and more profound debate about the future of the European Union. What will the EU of tomorrow look like with nearly 30 Member States? The future has not been fully mapped out and a lot depends upon the peoples and the national governments of Europe.

Forthcoming issues:

Some of the subjects to be considered in future include:

  • Simplification of the Treaties.

  • Demarcation of responsibilities (who does what in the EU, what powers have to be exercised at EU level and what by the Member States, How can we ensure that different levels of legislative and administrative action complement each other more effectively?)

  • The status of the Charter of Fundamental Rights of the EU in the Treaties after its proclamation in Nice.

  • The role of national parliaments in the institutional architecture of the EU.

Once this preparatory work has been completed, another intergovernmental Conference will be convened in 2004 to deal with these questions and make any necessary changes to the Treaties. This IGC may, however, under no circumstances impede the enlargement of the Union.

Table 1: Official parities of the currencies in Euro-zone



Exchange Rate/Parity


Austrian Schilling

1 Euro = 13.7603 ATS


Belgian Frank

1 Euro = 40.3399 BEF


Finnish Mark

1 Euro = 5.94573 FIM


French Frank

1 Euro = 6.55957 FRF


Deutsche Mark

1 Euro = 1.95583 DEM


Irish Pound

1 Euro = 0.787564 IEP


Italian Lira

1 Euro = 1936.27 ITL


Luxemburg Frank

1 Euro = 40.3399 LUF

The Netherlands

Netherland Gulden

1 Euro = 2.20371 NLG


Portugese Escudo

1 Euro = 200.482 PTE


Spanish Peseta

1 Euro = 166.386 ESP





Name of tax

Normal tariff (%)

Reduced/ Concessional tariff (%)

Raised/ Bound tariff (%)

Zero tariff/ VAT-free goods


































7 (Food,








MWSt. (local












Great Britain



8 (Fuels)
















material, Raw


gold, Scrap


and metall


























TABLE III: Pak-EU trade balance


Value in US$m. 1997-98

Value in US$ m. 1998-99

Value in US$ m. 1999-2000