So it is here at last, the euro notes and coins are in circulation in the 12 countries of the eurozone and like the contents of Pandora’s box, now it is out in the real world it can’t be put back again.
In one fell swoop 12 currencies have been abolished and replaced with just one covering 300 million people, and that is likely to grow. Denmark, Sweden and even the UK could join in the next few years and then there are the applicant countries like Poland and Hungary, which are knocking on the door of the EU. They could be in the euro by 2007.
On new year’s eve I witnessed the whole event from outside the European Central Bank in Frankfurt and damned cold it was too, but I wasn’t alone.
One of the biggest media circuses I have ever seen turned up on the night to see the birth of the euro and crowds of Germans flooded into the area to witness the start of the new year and a new currency. That is a measure of just how important the changeover really is.
But for the average Frankfurter the whole event seemed to be a chance to spend their last deutschemarks on bratwurst, gluhwein and for some strange reason fireworks, which they set off in the middle of the crowds to startling effect.
But the event was not unremitting pro-euro. I dragged one very confident international banker out of his new year’s eve banquet for a TV interview. He was relaxed during the interview assuring the world that the euro’s arrival would be smooth and seamless. Then when the camera was turned off he squeezed my forearm and whispered in my ear: ‘But be sure to keep your credit cards with you for the next few weeks.’
But the man who really hit the nail on the head was Edgar Meister, a member of the board of the Bundesbank and a former finance minister of Rhineland Falls, who pointed out that the success of the euro won’t be judged by whether cash point machines work immediately or not.
Instead he said: ‘It depends on the price stability and the strength of the euro and both I am convinced we will get in the future.’
Not everyone is as confident as Meister but he is right about what the key to the future of the euro really is. A strong stable currency and low inflation are just what the eurozone (and the most other economies) need.
With that in place the euro zone could begin to benefit from all those theoretical benefits of a single currency, transparency, free movement of goods and services and massive economies of scale. Some economists are talking about improvements in European growth rates of one percent a year. The ECB is much more cautious although as Wim Duisenburg, the head of the European Central Bank, admitted ‘even growth of half of that is a lot’.
That is very cautious central bank speak for an economic miracle, adding just half a percent to the growth rate of Europe would, in a surprisingly short time, transform the balance of economic power in the world. But despite being one of the largest economies in the world, Europe will find it difficult to reap those benefits unless there are some pretty serious changes to its economy. The scale of the problem and the work yet to be done should not be underestimated.
Some problems will be fairly easy to deal with, as Olaf Schepers, manager of one of Frankfurt’s largest department stores, the Galeria Kaufhof, told me: ‘It hasn’t been that difficult training our staff to adapt, it’s the customers we think will have the problem.’
If people in the street are having some teething troubles, that is only to be expected. But a wider problem for the euro is that although it is supposed to be one currency for all 12 countries it is still difficult and expensive to move money around the eurozone. If you want to carry cash that is fine, but just because one single currency exists it doesn’t mean there is one pan-European banking system.
Although there are no longer any exchange rate costs in the eurozone it is still expensive to move money from say a bank in Greece to one in Finland. Romano Prodi, president of the European Commission, put it rather well when he said: ‘What is the point of a single currency if you can only use it in your own country.’
That means even on making the euro a truly single currency there is a lot of work to be done, but that is only the start of the process. After all the euro is supposed to make the eurozone one giant economy that can rival the USA. It will be much more difficult to do that of it had a fragmented and expensive banking system or if countries insist on protecting certain of their own industries from competition and take-over.
The euro isn’t the end of the result of a perfectly transparent and liberal economy. It is a spur designed, in part, to force through the changes necessary to open up Europe.
In the US, over 50% of take-overs and mergers between companies take place between companies in different states of the union. In Europe the figure is 14%. If the euro is to force greater economies of scale there are going to have to be a massive increase in the number of mergers and take-overs across Europe.
That is difficult at the moment with each country having its own legal system, stock market and competition authorities. The euro may mean it is more worthwhile bearing the cost and risk of overcoming barriers but it won’t remove them just because it is the single currency of the eurozone.
Or take the issue of patents. In the US, there is one system for registering your invention, in Europe the system is a mess. Some companies don’t bother to patent their discoveries in every country in the EU, it is too expensive. Once again the euro may make it more likely companies will bother but it won’t make it easier.
To remove these and the other barriers to trade and business will require time and a great deal of political effort. It is easy to forget with all this talk of a single currency just how diverse and nationalist European politics still is.
Britain has fought a long battle to protect the Post Office from foreign competition even though it should in theory mean lower prices and a better service. France is famous for dragging its feet over opening up its utility markets to foreign firms and Germany will try to maintain its virtual ban on foreign take-overs of its industry.
You could pick ten other cases of special pleading and delay for every member of the European Union. Each one will have to be sorted out in endless meetings and conferences, with tough horse-trading and even the occasional use of the national veto.
But if the euro is to really succeed, to become more that just a few notes and coins, all these things and many more are going to have to change.
But there are some signs that things are beginning to happen.
Amid all the laser shows, fireworks and celebrations of the New Year it was easy to forget there was another change-over at midnight on the 31 December. Spain took over the presidency of the EU from Belgium at exactly the same second the euro became a reality. Spain now gets to chair all meetings of the EU and far more importantly set the agenda – and top of the Spanish agenda is removing all the barriers to trade in Europe and improving the single market.
You may think that is something that should have been done before introducing a single currency and you may well be right. But the euro does mean that all the barriers and faults of the eurozone’s economy are going to stand out more than they did before. It is much easier to protect your own industries, business and citizens if you have your own currency, and introducing competition will end a lot of cosy lifestyles in Europe.
Jobs will probably go in the short-term and labour market flexibility, although good for an economy overall, normally means some very unpleasant side effects for those at the bottom of the pile. But Europe’s leaders are thinking in the long-term. When asked at the pre-launch press conference how long the euro would last Wim Duisenburg, replied quite simply: ‘Forever’.
In Frankfurt on 1 January hung-over partygoers were still making their way home when I got up to see how the euro was working. The first signs were encouraging. After all the talk and hype the notes and coins were in people’s pockets and easy to use. I got my euros out of a cashpoint with no difficulties and went shopping. The system works, but speaking to people here I get little sense that they realise what massive changes the currency is likely to entail.
FROM THE EURO FRONT LINE
The switch to the euro seemed to have gone remarkably smoothly in France, reports Philip Smith from Lille.
By lunchtime on 2 January, the first real trading day in the brave new world of the single currency, there were no angry scenes of rebellion, only quiet resignation to the passing of the French franc.
Normally Yves Baron works in the internal audit department of Paul, the patisserie chain, but yesterday he was in front of the counter at Paul’s EuraLille outlet to ensure a smooth change over to the euro.
Baron had spent the past year running the company’s euro project, and he was now making sure his plans had worked.
‘Today is our first day of the euro and I am here to explain how it works,’ he said. Paul had twice the usual number of staff working behind the counter in a bid to speed up serving customers who paid in francs but were given their change in euros.
‘So far we have only lost one customer who wanted his change in francs,’ Baron said.
Paul’s Patisserie has 250 outlets, and all 4,000 of its staff had been sent on a half-day training course to understand the euro during the past three months.
At Carrefour, France’s largest supermarket chain, managers had brought in an extra 20 cashiers at a cost of EUR 2,000 a day so that all 50 checkouts were open to help customers.
But most of the checkout staff, proudly sporting euro t-shirts, were having a quiet day.
Amanda Aldridge, KPMG’s head of retail, was impressed with preparations for ‘e’ day. ‘It is good that stores are allowing extra time to explain the changes to customers,’ she said.
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