THE contest for biggest economic event next year is likely to be decided even before the year's first financial trade is completed. At the stroke of midnight, central European time on Thursday, the 11 countries that have pledged to join in economic and monetary union (EMU), will see their currencies dissolve into a new single currency known as the euro. Physically, for the next three years, there will be no change to the notes and coins circulating in the participating countries, but the value of the currencies will be irrevocably locked to the euro's value in financial markets. Furthermore, interest rates no longer will be governed by purely domestic factors, but decided centrally, taking into account the economic fundamentals of all 11 countries combined. Such a fundamental centralisation of economic policy will have a profound impact both on consumer and financial markets. At the consumer level, the euro will prove to be a watershed for age-old habits. With prices across the 11 countries being dually priced in the initial days of EMU, transparency will be at a new level. Lower-cost countries such as Portugal and Spain suddenly will be seen as hugely competitive against their more expensive northern neighbours, such as Germany and France. A recent study by Lehman Brothers found that prices differ by an average of 23 per cent, double the difference seen in prices in the United States. The European Commission, the Brussels-based executive for the 15-nation European Union, has estimated that it is 50 per cent. Analysts say such revelations will herald a downward convergence in prices across the eurozone, although initially not to a large extent, given that euro notes and coins will still not be in circulation. Financial services, particularly credit cards, where the price disparity can be as much as 65 per cent, are expected to see the most ferocious price-cutting. Similarly, bank account charges and house insurance costs, where differences across Europe are as wide as 55 per cent, will come under pressure. Other items ripe for transnational competition are beer, where nationally imposed taxes have meant that prices can vary by as much as 50 per cent, and pharmaceuticals, where similar government pressures are blamed for the differences in price across Europe. Similarly, in financial markets, European equity investors, and in particular pension funds, will find that regulatory shackles that once prevented them from investing in any large amount in non-domestic assets are suddenly lifted. With such investors free to place their funds across the eurozone, analysts forecast this in itself will see a huge move away from country funds to euro-wide sector-based investment in equities. The transformation in fixed income markets is likely to be even more pronounced, and will almost certainly be more quickly felt. Yield curve convergence and the adoption of the euro will bring credit ratings and maturity considerations much more to the fore of the investment process, replacing virtually overnight the currency-interest rate curve considerations that previously dominated asset selection. In line with the equity market, bond investors are expected to broaden their traditional investment limitations from national boundaries to eurozone countries. The change will be more immediate, because government bonds will be redenominated on day one of EMU, while corporate bonds are set to redenominate a short time after. 'As of 1999, [fund managers] will care more about credit ratings' than national characteristics, Gordon Milne of WM Co said. The feat of bringing 11 politically and culturally different countries together is remarkable in itself. With interest rates in the 11 countries almost entirely converged at 3 per cent, and budget and gross debt deficits within the prescribed guidelines - barring some notable exceptions - the wind looks set fair for monetary union. Looking forward, inflation at just over 1 per cent is at its lowest level in almost half a century and growth is likely to exceed 2 per cent next year. Furthermore, political parties in Europe, who have become increasingly fearful that unemployment will rise sharply, appear willing to subscribe to structural reform of their economies, rather than apply pressure for more interest rate cuts and greater spending. Of course, it is not all rosy for the euro project. Despite the fact that Europe is largely an insulated economy, whose countries conduct significant trade among each other, it has been buffeted by the slowdown seen across the globe, and most notably in Asia and Russia. The surprise reduction in interest rates earlier this month by all 11 eurozone countries was seen as a direct result of the deterioration in external conditions. Analysts say, however, that this is why structural reforms in Europe - encouraging the mobility of workers, reductions in state spending, and, longer-term, the harmonisation of tax systems - are vital for Europe to remain a robust economy able to withstand the turmoil in markets elsewhere. Should this be achieved to a sufficient degree, the launch of the euro will go down in history as the first step towards a dynamic multi-polar global economy that rivals the United States and increases global wealth.