Meet the Millennium Bug’s European Cousin

As companies and government agencies race to repair the millennium bug before Jan. 1, 2000, another costly deadline has been creeping up on the world’s computers with far less fanfare: the conversion of European currencies to the euro.

This Jan. 1, the euro will become a live currency for electronic transactions. The actual bills and coins of the euro will appear after a three-year transition period, replacing the national currencies of 11 European countries.

Europe has been steadily moving forward with the conversion since the 1992 signing of the Maastricht Treaty, which established the European Monetary Union. But the near-coincidence of the euro conversion and the millennium bug has created a computing nightmare that many companies have acknowledged is too much to deal with. The two conversions jointly make for one of the biggest technological repair jobs in history.

The result for companies is a Sophie’s choice of computing: Either leave your systems vulnerable to the unpredictable mischief of the year 2000 problem or have them choke on the complex and arcane manipulations of the euro.

Nearly half of European companies have programmer jobs that they have been unable to fill because of the overload of work, according to a study by technology research and consulting firm GartnerGroup Inc.

“It’s a matter of triage now,” said Martha Bennett, European vice president for research at Giga Information Group Inc. “Companies have to decide what do they absolutely need. In Europe, just as in the U.S., there aren’t enough programmers to do both.”

The Y2K problem by itself rates as a calamity of the first order that will cost $300 billion to $600 billion to fix, along with some multiple of those figures for the wave of litigation that will follow, according to GartnerGroup.

The problem stems from the inability of some computers and programs to deal with reading the two-digit year “00,” which could be interpreted as either 1900 or 2000. While it seems simple on the surface, the problem has proved extremely difficult to correct since it affects such a wide range of electronic systems, potentially encompassing all microprocessors, software and computer systems.

The difficulty has been finding and testing every use of a two-digit date in the trillions of lines of code scattered around the world. The actual repair, by expanding dates to four digits or providing machines with some basic rules on how to decide when to stick a “19” or “20” in front of a date, turns out to be relatively simple.

In many ways, euro conversion is a much trickier computing problem since it involves retooling the heart of a program to deal with the numerous rules on converting European currencies.

For companies outside of Europe, the saving grace in the situation is that a relatively small number are affected by the change.

Capers Jones, chief scientist of Artemis Management Systems, has estimated the global cost of repairing software to handle the euro at about $1 trillion spread over several years--about on par with the gross national product of France. Of that total, Jones estimates the cost for U.S. companies at a relatively minuscule $59 billion.

But for multinational or financial service companies, the conversion raises a host of programming issues.

Bloomberg, the provider of financial information and news, has been working on euro conversion for three years. Over the last year, half of its programming budget has gone to preparing for the euro.

“For us, the euro was much more difficult than Y2K,” said Leslie VanOrsdel, North American project manager for Bloomberg’s euro conversion project. “The year 2000 is just a matter of making sure your software works. With the euro, people’s business will be different and so our applications have to be different too.”

Euro Conversion

The euro conversion may seem like a simple problem--just the addition of yet another currency in the world’s patchwork of coins and bills.

The reality is that it demands a variety of programming changes to re-create the economic interdependencies of the new Europe and artificially impose a stability on the economic relationships between the 11 countries.

“The people who are going to find themselves on their heels are the ones who say the euro is just another currency,” VanOrsdel said. “They have no idea how much research is involved. If you don’t do the research, you won’t get the details right. And if you don’t have the details, that means a trade won’t go through, and that’s lost money.”

Through the three-year transition period, the exchange rate among the 11 currencies will be frozen, allowing the currencies to become subunits of the euro, in the same way that dimes and quarters are subunits of the dollar. Only the euro will float against other international currencies.

The static exchange rates create an unusual situation involving a seemingly trivial issue: rounding errors. The errors are common in calculating interest or fees. In currency markets, where billions of dollars can trade hands, the rounding errors can become significant, although with floating currencies, they are less important because the variable exchange rates can accommodate the slight errors.

With fixed rates among the 11 countries, rounding errors can steadily mount, and there is the possibility of systematic exploitation of the slight differences. In other words, someone could make a consistent profit by simply trading currency at the fixed rates.

The solution is a process called triangulation, which requires that converting from one currency to another be done through the euro using fixed six-digit exchange rates. In other words, to convert from German marks to French francs would require first converting marks to euros, then euros to francs. The triangulation system will exist only during the three-year transition.

Leonard H. Beasley, a euro conversion research analyst for mainframe service company SPR Inc., said euro conversion will also require a large-scale conversion of historical financial data, a rewriting of programs so they can deal with new business and marketing plans and a system to ensure that the whole system can be turned off in 2002 when the transition ends.

Beasley said many companies are still trying to figure out the most basic questions of what they want their new programs to do, since the way of doing business in Europe will change so drastically.

Enormous Cost

Companies that have undertaken both the euro and Y2K conversions at the same time have done so at an enormous cost in both dollars and manpower.

At Chase Manhattan Bank, work on the euro and Y2K has been going on for several years. The repair of the millennium bug has cost more than $360 million; preparing for the euro has cost another $75 million.

Some smaller companies, despite the costs, have also dived into both tasks. Repairing the Y2K problem is a must-do project for them, but the euro conversion, some companies say, offers a chance for them to better position themselves to deal in the new Europe.

“If our retailers say they want to pay in Irish pounds, well, we have to learn how to deal with Irish pounds,” said Fred Port, president of Carlsbad, Calif.-based Callaway Golf International, which does 20% of its business with European firms and has been working on both the Y2K and euro problems for the last year. “We have an obligation to work with our customers. We’re going to try to accommodate our trade partners.”

Fortunately for most U.S. companies, there is no requirement to triangulate when converting to or from the dollar. Many large banks also have begun to offer services to companies that need to deal in euros but don’t want to make the computer conversion.

The lesser impact of the euro on American companies has allowed them to concentrate on repairing the Y2K problem. But even with the concerted effort in the United States, some estimates project that one in six software applications won’t be fixed in time.

In Europe, euro conversion has taken precedence while the millennium bug has languished on the sidelines. Bennett, of Giga Information Group, said the situation has begun to change, with European companies now forging ahead with Y2K repairs.

Her observations have been backed up by a global survey of companies by Cap Gemini Group, the largest computer services company in Europe. The survey noted for the first time substantial progress by European companies in their repair efforts. In the case of Germany, the survey found that as much as 90% of next year’s information technology budgets will be spent on the Y2K problem.

Bennett said time is running out for resolving the millennium bug problem and that unforeseen problems from the euro have just begun.

“There is going to be a fair amount of chaos, but we will all muddle through it,” Bennett said.

Times staff writer Ashley Dunn can be reached via e-mail at ashley.dunn@latimes.com.