One word in the German language neatly sums up the catty climate which lingered in some quarters in the countdown to the single currency – ‘Schadenfreude’. Namely, the taking of pleasure in others’ misfortunes.
One month on from the introduction of the euro in 12 member states of the European Union and the word from the European Central Bank is good.
Bad news for minds schooled in the meagre art of ‘I-told-you-so’ economics who gleefully predicted monetary mayhem.
The latest update on the progress of the single currency published by the ECB on 25 January, enthuses ‘the wide-ranging success of the euro cash changeover is due to the thorough preparations of the parties involved’.
The value of euro banknotes now in circulation (some 8.1 billion) currently amounts to EUR213bn (£129bn) with ‘the return of national currencies continuing as foreseen’ the euro-enthusiasts at the bank underline.
1997 – Life under the single currency
To the Italians in the small Tuscan town of Fiesole these dual testing times have a familiar ring. More than four years ago the 15,000 population became the first citizens in Europe to glimpse life under a single currency in a one-off ‘euro’ experiment. From October 1997 to March 1998, Fiesole Council ran the ‘Ecco l’euro!’ project which put into circulation a ‘pseudo’ currency along side the lire.
But in those experimental days, exchange rates and prices were much freer and, above all, much rounder. The Fiesole initiative set the euro/lire exchange rate at L2000 to one euro, with the currency limited to EUR0.5, EUR1 and a EUR3 banknote. At the time of the currency trial, the one and two euro cent pieces now causing such confusion among Italians unused to small denominations were but a mere twinkle in the eye of the policy wonks at the Frankfurt-based ECB.
‘We had to invent an exchange rate for the initiative,’ explains Professor Mike Artis, head of economics at the European University Institute of Florence.
‘In the event the current rate is L1936.27. One of the things we’re now seeing in shops is people haggling about whether or not prices have been correctly converted to the euro and visa versa.’ Livia Marinetto, who headed the ‘Ecco l’euro!’ scheme, explains that the six-month ‘simulation’ did not prepare Fiesolans for the practicalities of spending in the real single currency. ‘Ecco l’euro! was useful from a cultural viewpoint,’ says Marinetto, who now acts as an economic policy consultant to Fiesole council, ‘because when the euro came into circulation, the local population was already familiar with terms associated with monetary union’.
A blueprint for change
Marinetto also believes the project served as a ‘blueprint’ for the way public and private institutes might communicate with each other during the changeover phase.
Despite initial reports that the peninsula was lagging behind in the euro take-up stakes, data collated by the EU’s directorate general for economic and financial affairs shows the country is now on a par with other eurozone first-timers.
Silvia Viceconte of the DG’s European Monetary Union Unit explains that although initially there were differences in circulation rates, the situation has now levelled out. ‘95% of all transactions are now being made in the single currency,’ affirms the Brussels-based economist.
‘Of course smaller countries like Ireland and the Netherlands got themselves sorted more quickly. It was obvious the bigger ones would take more time.’
And like the rest of the eurozone, Viceconte underlines that Italy’s banking sector had done its homework.
The current ECB data points to 50% of transactions being conducted in euros in the first week with the conversion of cashpoints completed in the same period.
But unlike the 1997/98 Tuscan experiment in which local savings banks and post offices encountered cash shortages, 2002 frontloading – the transfer of cash from central banks to commercial banking institutions – was well-planned and executed.
‘We saw a very, very high percentage of withdrawals in the first few days,’ says Italian-born Viceconte. ‘But what we also saw was people buying a litre of milk with, for example, a L100,000 note (£32) because they wanted to get the change in euro. Everyone was trying to use the old notes they had under the mattress.’
The tailback of cars at Italy’s motorway tolls over the new year period testified to the national desire to use any means possible to be rid of the old and to get hold of the new currency.
Transition in the retail sector
The transition phase in the country’s retail sector got off at a slightly different pace, however. Unlike the Fiesole scheme where participation in the project was on a voluntary basis, nationally businesses had little choice but to opt in to EMU (dual pricing and invoicing in the single currency were already commonplace). The leisurely take up of the euro was for reasons economical, the country’s traders opined.
‘Sub-front loading in Italy, the money which went from commercial banks to retailers on the basis of cash orders, was much slower than in other eurozone countries,’ explains Italian-born Viceconte. ‘The main reason being that the Treasury imposed very high penalties for loss of cash in the countdown phase. So many shopkeepers just did not want to take the risk of having currency stolen or lost.’
The European University Institute’s Professor Artis who led the research into ‘Ecco l’euro!’ before and after the event, believes that no comparison can be made between the Fiesole experience and the ongoing euro cash changeover.
The initial blip in the six-month project which saw the facsimile money snatched up as a collector’s item rather than a currency with real buying power cannot be compared to the difficulties now facing the public and private sectors trying to boost consumer confidence in the eurozone economy.
‘The project drew people’s attention to the fact that monetary union was in the offing,’ comments Artis, ‘but ‘Ecco l’euro!’ was an artificial experiment. One of the big problems we experienced was getting people to spend the currency because there was no particular reason to do so. Now people have to use the euro. That’s the fundamental difference.’
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