Hong Kong is likely to adopt the euro as the principal currency in trade between the SAR and European Union member states after it is formally introduced in January. At a Hong Kong Exporters' Association (HKEA) luncheon yesterday, Secretary for Trade and Industry Chau Tak-hay said removal of transaction costs between member states and the resulting savings and increased competitiveness would make the euro an appealing option for Hong Kong trading companies. He warned that the single European currency was imminent and that local businesses had to embrace its arrival or they could lag behind. Instead, they should understand the potential benefits to their businesses, Mr Chau said. 'The discipline required of economic policies for the euro zone is expected to help ease inflationary pressure and lead to lower interest rates,' he said. 'This in turn should generate an environment conducive to trade and investment within the zone.' There should be subsequent flow-on effects for Hong Kong, he said. Faster economic growth in the euro zone should stimulate demand for Asian imports. Last year, the European community accounted for 10 per cent of Hong Kong's exports. Beyond trade advantages, the euro's formal introduction in January also would stimulate direct investment between Hong Kong and member states, he said. Hong Kong companies should consider establishing strong footholds in Europe to enable them to compete with European counterparts. The euro would bring about a more competitive financial environment and European companies also would be searching for investment and export opportunities outside the region. In the midst of a crippling liquidity crunch, it was important for Asian businesses to seek as many new funding sources as they could, Mr Chau said. 'Over time, the euro market could well develop into a good source of funds not to be overlooked,' he said. A number of issues such as denomination of new contracts, implications for equity and debt financing, as well as hedging strategies, needed to be considered. HKEA chairman Jeffrey Lam said while he believed the euro would be positive for exporters, most would sit back and wait to see how the new currency fared on the open market before deciding to commit to signing euro-denominated contracts.