SPECIAL REPORT: THE EURO: Cometh the hour, cometh the money. Are you sure, Wim?

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Series Details Vol.7, No.41, 8.11.01, p23
Publication Date 08/11/2001
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Date: 08/11/01

By Peter Chapman

Despite a massive publicity blitz on the euro, many Europeans remain in the dark about the practicalities of the new currency: When the United States of America decided to quit using strings of shiny wampum shells, Spanish silver pieces and assorted British pounds shillings and pence, no one grumbled about the need for 'front-loading' or the lack of cash-point machines packed with new notes.

It might have taken a few years, but that didn't stop the greenback, launched in 1862, becoming the world's pre-eminent means of payment. These days, the launch and operation of a continental currency is a more sophisticated - and controversial - affair.

Since national eurozone currencies were fixed irrevocably two years ago, the European Central Bank (ECB) has set its key short-term interest rates through weekly calls to tender for billions-of-euro worth of securities to be repurchased at the 'repo rate' a couple of weeks later.

A far cry from 17th century Manhattan, when governor Peter Stuyvesant arranged a loan in wampum worth more than 5,000 guilders for paying the wages of workers building the New York citadel. And each day billions more euro whizz across the EU banks' electronic networks - the Trans-European Automated Real-Time Gross Settlement Express Transfer system (or TARGET for short).

All very clever stuff. But, as ECB President Wim Duisenberg and Monetary Affairs Commissioner Pedro Solbes would admit, the biggest challenge is yet to come.

On 1 January, the euro makes the quantum leap from the balance sheets of big banks and finance houses to the pockets of the European public. "The distribution of over 14 billion banknotes and 50 billion coins to over 300 million people in 12 countries, accustomed to 12 different currencies, is a logistical and strategic challenge unprecedented in history," says Solbes.

An indication that things are not running entirely smoothly came in a European Commission report to the Ghent summit last month. It showed that despite extensive information campaigns, many citizens are badly informed about the cash they will be spending in a matter of weeks on everything from a haircut to a new car. Some 22 of Europeans still don't know that euro banknotes and coins will start to circulate from 1 January and 75 are unaware of the length of the dual circulation period, when both their old national currency and the euro will co-exist.

Perhaps more shocking is that at least a quarter of Greeks and a fifth of Portuguese don't know that they can spend their euro in other eurozone countries.

There are also major concerns among consumers that the launch of the euro will be an excuse for prices to rise, despite pledges (and even laws) across euroland for rounding of the complex exchange rates between old currencies and euros in favour of the citizen.

The most concerned are the Italians, with 68 fearing the euro will leave them poorer. Over half of eurozone citizens fear traders will cheat them, with pensioners (60) most worried.

Meanwhile, many fear they will make mistakes with their arithmetic - one problem that can't be blamed on the policy makers. The nervous Italians topped the fear league again, although their conversion (divide roughly by 2000) is a lot easier than the one faced by their Spanish counterparts (divide by 166).

So much for the nuts and bolts of getting euros into the hands of the people on 1 January. What about sending them elsewhere?

The launch of a currency without national frontiers has led to calls for the end of national barriers to cash transfers.

Why, say MEPs such as Holland's Karla Peijs and Commissioner Frits Bolkestein, should it cost more than €20 to send €100 between two eurozone banks?

The response was a draft regulation designed to force banks to charge the same for cross-border payments as they charge for domestic ones.

The price-fixing law was like a red rag to a bull for the banks, which claim that costs are still far higher for cross-border transfers. Imposing price restrictions, they say, will lead to banks charging the majority of customers, who never make cross-border payments, more for other services.

Bank card companies which boast that their operations are low cost already are spitting blood over the law, which they claim is a nothing more than a political stunt.

With just under two months to go until e-day, Duisenberg and Solbes are touring the eurozone to reassure us that cometh the hour, cometh the money.

Prices won't be hiked, money will be in cash machines and starter kits of euro coins will be available in the days before e-day - even if notes are not (the ECB claims that would be "too confusing for consumers").

The refusal to 'front-load' banknotes left EU consumer group BEUC and assorted MEPs seething, but ten years from now who will care about teething problems, last-minute nerves or rancour?

Sure, the ECB will be given the same verbal grillings from finance ministers for failing to cut or raise interest rates to cover up for their own budgetary failings. No doubt a bespectacled septeganarian will be running the show, confusing markets with the communication skills of a local parish councillor.

But it's a safer bet that the euro will be part of the furniture; as much a part of European life as Coca-Cola and pizza and the greenback are part of America's. EU enlargement will add millions of new members to the euro club. Perhaps even the sceptical Brits, Danes and Swedes will take the plunge.

And if the European Commission and ECB's press campaign or even Belgium's funky 'Mr Euro' has still failed to convince about the benefits of a stable, single European currency, perhaps you should revert to the view of Russian wordsmith Dostoevsky who said: "Money is coined liberty." Poignant words indeed in these troubled times.

Article forms part of a special report on the euro.

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