On January 1, 1999, European Monetary Union (EMU) replaces the currencies of 11 European countries with a single currency, `the euro'. The resulting linked economy will rival the United States as the world's biggest free-trade single-currency region, according to Merrill Lynch.

European companies that will see their currencies switching over to the euro are Austria, Belgium, Finland, France, Germany, Ireland, Luxembourg, the Netherlands, Portugal, Spain and Italy. Britain, Denmark, Sweden and Greece plan initially to maintain their own currencies.

"This is going to be a whole new playing field with larger competitors" and a deeper capital market, said Robert Baldoni, an Ernst & Young partner spearheading the accounting firm's US attempts to ready its clients.

But after attending a recentconference on the topic, Baldoni said, "I was shocked at the number of treasurers who were not sure if if the euro was really happening."

Ernst & Young said that of 200 multinational US corporations it polled in a survey, just 45 per cent had set up teams to evaluate how the euro and the resulting new, deeper economy would affect their bottom lines. Of the minority that formed teams, E&Y said, only 20 per cent had begun to seriously analyse the consequences and take steps to address new opportunities.

This puts US companies far behind their European counterparts, where a full 70 per cent have set up teams and started to launch strikes to capitalise on the overhaul of the monetary system.

Most important, analysts said, is for US firms to take steps now to ensure they fully participate in a market whose currency Ernst & Young expects will govern 35 per cent of all global transactions by 2002. First and foremost is a problem faced by all companies doing business in Europe -- how to set up computer systemsto deal with the new currency.

"The euro is really quite a significant trick to look at in terms of new applications," said John Downe, head of IBM's euro customer initiatives.The transition means huge new possible revenues for Big Blue, which estimates that between $70 and $80 billion will be spent on information technology (IT) systems for the euro over the next five years. Downe said IBM is working on a number of specific euro-related products and marketing campaigns.

But the issue stretches well beyond accounting and computer systems. Many US firms may need to change their thinking if they hope to remain competitive in Europe.

"Too many people think this is an accounting problem like Y2K where some guys sit in a backroom to make sure computers don't crash," said Ernst & Young consultant Bruce Fiumara, referring to the millennium computer bomb that could occur when the date changes to the Year 2000.

"This goes far beyond that. If you don't do something, you are going to have crashes in yourrelationships with your customers. There are going to be winners and losers here."

Beyond software, US companies must also rethink their European strategies to take account of several opportunities and challenges: alliances and mergers -- particularly while the dollar remains strong; greater price transparency across the region; and restructuring to reflect a unifying economy.

Consolidation is expected to sweep Europe, especially the financial services sector, as the euro approaches.

"M&A (mergers and acquisitions) is about to explode in Europe with the consolidation, the move to the euro and the lowering of trade barriers," said John Chalsty, chairman of Donaldson, Lufkin & Jenrette. "We are seizing opportunities as rapidly as we can."

With greater price transparency, companies will also have to rethink pricing strategies. With lower trade barriers and one currency, stark price discrepancies may not be tolerated by consumers who see their neighbours paying lower prices.

"We do have some pricingissues, but they are minor," said Tupperware Corp. spokeswoman Christine Hanneman, "If we price a bit differently between countries such as France and Germany, we now need to modify that." Europe is Tupperware's biggest market. Last year, Tupperware sold $546.6 million of its plastic storage containers in Europe, about 44 per cent of its $1.23 billion of sale and more than three Times its US sales.

Nimble companies are also reorganising their internal structures. For instance, IBM's Downe said: "You have to start doing things on a European basis rather than on the traditional country-by-country basis. IBM is pursuing that and other companies are rethinking their organisations that way."