In recent weeks there has been much press coverage regarding European monetary union (EMU).

Should the UK opt in or remain out? What are the implications of the UK joining or not joining? What legal issues arise and how are those to be addressed? The single currency is only one element of EMU, which also involves the free movement of capital and co-ordination of economic policy.The EMU timetable consists of three stages.

We are currently in stage 2 -- the convergence period -- during which the member states prepare for stage 3 by meeting certain convergence criteria that are preconditions for stage 3.

Early in 1998, the Council will decide which countries may participate in stage 3 by fulfilling the criteria.Stage 3 is divided into two parts.

Stage 3(a) -- the transitional period -- is to begin on 1 January 1999.

On that date, the exchan ge rates between the currencies of participating member states and the Euro (the new single currency) will be fixed irrevocably.

The Euro will replace the European Currency Unit (the ECU) on a 1:1 basis.The transitional period will last no longer than three years.

During that period, the Euro will co-exist with national currencies of participating member states, although Euro notes and coins will not be available.

Obligations payable in a national currency will be payable in that currency and obligations in Euros will be payable in Euros.

Member states will not be able to force or prohibit the use of the national currency or the Euro.No later than three years from the initial introduction of the Euro (ie, by 1 January 2001) Euro notes and coins will be introduced for retail transactions.

This represents stage 3(b).

Within six months, national currencies of participating member states will be replaced by the Euro, which will become the legal tender of those states.The 1992 Maastricht Treaty, which sets out the detailed provisions for the transition to EMU, does not address the relationship between the member states participating in EMU and those outside.

At this stage, it is not clear which member states will participate in EMU.

However, it seems likely that Austria, Belgium, France, Germany, Luxembourg and the Netherlands will be included in the 'first wave'.The UK has the benefit of a special protocol until 1 January 1998 allowing it to decide whether to exercise its right to 'opt-in' to EMU.

It is not clear whether that right will be exercised.

Assuming that the UK does not exercise that option and remains outside EMU, will there be any adverse consequences for the UK? Although it is simply not possible to provide a definitive list at this stage, the following points may be relevant:-- There are indications that Target -- the payment system for the Euro -- will not be available in its entirety to financial institutions located in member states that are not participating in EMU.

No final decision has been reached, but such limited access would be of concern to UK financial institutions and might prejudice London's position as an international financial centre.-- It is likely that the Euro will appreciate in value against a number of currencies outside EMU.

If the UK does not participate in EMU, sterling may be perceived as a weak currency and a victim of currency speculation.-- The draft Euro regulation, drafted by civil lawyers, appears rather sketchy to English lawyers.

Concerns raised by English lawyers may not be resolved in full and may result in English law becoming an unattractive governing law of financial contracts involving the Euro.-- The UK could become a less attractive European base for non-European companies.

Whether or not the UK joins EMU, English lawyers will have to deal with legal issues surrounding EMU.

Many key issues have been decided in the draft Euro regulation, but some issues still cause concern.-- Continuity of contracts is perhaps the most important legal issue surrounding EMU.

The aim is that the replacement of the national currency of a participating member state by the Euro should not result in termination of contracts that involve the replaced national currency.

However, there is a concern that, as currently drafted, the Euro regulation does not sufficiently provide for continuity of contracts governed by English law and that there is a risk of contracts being frustrated and terminated.

Legislation may also be needed in countries outside the EU to ensure that the Euro is recognise d and that contracts continue.-- It is intended that contracts denominated in ECU will be substituted by the Euro at the rate of 1:1, unless otherwise agreed in the contract.

Difficulties will arise here because the ECU is not a currency, but an accounting unit comprising a basket of currencies.

A particular problem arises in relation to ECUs defined in terms other than the current basket of the 11 currencies (the definition was not altered to take into account the accession of Austria, Finland and Sweden in 1995).

Older loan documents define the ECU in terms of a basket of only nine currencies.The main significance of the replacement of the ECU with the Euro is that the Euro is likely to reflect only economies of the stronger member states.

It is likely that the Euro will be stronger against external currencies than the ECU would be if it were to continue to exist.

Amounts expressed in ECUs are likely to increase significantly, perhaps causing one party to look to terminate a contract, particularly as EMU will not affect contractual interest rates.EMU will be of colossal importance, even if the UK opts out.

As well as accounting and IT issues, the most immediate concern is for companies to assess its impact on contracts (especially debt contracts) which might survive beyond the year 2000.

Clearly, lawyers will have a part to play in this work.