January 14, 2002
Time Atlantic
Reported by Bruce Crumley, Nicholas Le Quesne and Delphine Schrank/Paris, James Graff/Brussels, Jeff Israely/Rome, Angela Leuker/Vienna, Andrew Rosenbaum/Amsterdam, Ursula Sautter/Berlin and Chris Thornton/Dublin
There are few things more banal and downright grubby than paper money and small change. In an era of electronic commerce, serious capital--the stuff that buys shares in companies, builds factories or pays a mortgage--flits unseen from one bank account to the next. The cash in your pocket is for groceries and train tickets, for a schoolchild's spending money or a handout to a beggar. It gets rolled up for snorting drugs, or lost for years under sofa cushions. Shop clerks and bank tellers at the end of the day have to scrub off the black grime money imparts to their hands. But last week, when 12 European nations rolled out the single currency euro notes and coins, those intrinsically cheap little tokens--inoffensively illustrated with maps or imaginary monuments--managed to make Europeans feel they were part of something rather grand. Maybe never one great nation, and not yet a proper state, but for once a real community.
Europeans have often been disdainful of the European Union's ambitious but remote project of political integration. They have scant understanding of the inscrutable institutions of Brussels, which pour forth picayune rules on everything from bird hunting to the curvature of cucumbers. The debut of more than 10 billion new banknotes, legal tender from Helsinki to Palermo, has given 300 million Europeans their first concrete experience of union. An Austrian who stood in a long bank queue to get her first walletfull of euros could go home and see Spaniards doing the same thing on television. European Parliament elections just don't get this kind of saturation coverage.
Even better, it all pretty much went according to plan. In the hours leading up to the Jan.1 switch, there were still a few nagging anxieties that the euro could turn out to be a Y2K-like disaster for real. But those visions of self-destructing cash machines and riots in supermarkets didn't materialize. True, the banking network was stretched pretty thin. Banksys, the group that operates Belgium's atms, recorded some 600 cash withdrawals a minute in the first two hours of the new year. Two hundred Dutch post offices, which also function as banks for many small savers, weren't ready to open their doors on Jan. 2, the first business day of the euro era. The one real laggard appeared to be Italy, whose conservative government has been unusually cool toward the euro. Italians complained of a short supply of coins, and they used euros for just 3% of cash transactions on Jan. 2, compared with a rate of 50% in the Netherlands.
And, yes, there were plenty of long lines. In France, motorways backed up as drivers eager to break their francs into euro-change skipped the credit card and electronic "smart-pass" lanes and flooded tollbooths. Meanwhile, some small shopkeepers have resisted government urgings to get the old currency out of the system by giving euros in change for deutsche marks, francs or pesetas. "I am not a bank," gripes a vegetable seller at the Place d'Aligre outdoor market in Paris.
For the most part, though, Europeans greeted the launch with good humor and even a measure of civic-mindedness. A national French bank tellers' strike scheduled for Jan. 2--widely viewed even in union-friendly France as an opportunistic shakedown--fizzled out after almost everyone showed up for work. And those much-photographed queues outside some banks were strictly voluntary displays of euro enthusiasm, since in most countries the old currencies are still good for at least another month. The Creditanstalt bank in Vienna opened for five hours on New Year's Day and found itself swamped with customers trading in their schillings for euros, even though almost no stores were open to take either currency.
Accepting the new money is one thing. Getting used to it will take a little longer. For the next few weeks, Europeans will live like tourists in their own country, pondering over price tags trying to decide if that new sweater or television set is a bargain or a rip-off. Most Italians will no longer be millionaires, and the French will have to cope with the fiddly exchange rate of 6.56 francs to 1 [euro]. ("It's easy," says another Paris greengrocer, displaying his mathematical prowess. "You just divide by 50% and add that to the original, then times by 10 ..." Well, the good news is that big banks like Societe Generale have passed out free calculators.) Even the Germans, who merely had to chop the old deutsche mark prices in half, seem slightly perplexed. Almost 50% of Germans polled by Allensbach, an opinion researcher, thought a new Volkswagen Polo priced at 26,000 deutsche marks was expensive, but only one-third said the same thing about a VW priced at the equivalent 13,000 [euros].
Naturally, this had led to worries about merchants taking advantage of the confusion by sneaking in price hikes, or just rounding up their prices with the conversion. At Bar Pamphili in Rome, a single espresso costs 1,100 lire, the equivalent of 57 euro cents. Pay in euros and the same cup costs 60 cents. "We rounded all the prices, some up and some down," owner Giuseppe Scaramuzzo is quick to explain. "Anyway, today is just the first day. It's like an experiment." The early evidence is that most businesses have played fair, with a little cajoling from watchful consumers and national governments. In Italy, playing games with the exchange rate can, in theory, earn a shopkeeper a very round 1 million [euro] fine and even jail time.
In the long run, the greater transparency of euro pricing should also work to the advantage of consumers. "I'll tell you what will make me feel more European," says a security guard watching at Dublin's General Post Office, where child benefits are being handed out in stacks of 5 [euro] notes. "When we start paying the same as people on the Continent." Well-traveled Europeans instinctively know that prices are cheaper in some countries than in others, and now it will be that much more obvious. "Manufacturers and multinational corporations will have to explain the difference," says Carmel Foley, Ireland's director of consumer affairs. "That sort of scrutiny will exert downward price pressure."
Already, the cost of all this to European businesses has been monumental. France's Carrefour supermarket chain spent four years getting ready for the euro and has had to put 3,500 extra staff on duty since Jan. 1 to man 20% more tills in order to cut down on queues. And compared to many businesses, Carrefour has it easy. "In our hypermarkets, only 25% of transactions are settled in cash," says Vincent de Meaux, who directs Carrefour's changeover effort. "For the 75% that are made with credit cards and checks there won't be any problem." German vending machine operators, on the other hand, have to euro-ize every single one of their game terminals, jukeboxes and cigarette machines, which for older models could cost as much as 750 [euros]. "It's been a great burden to us," says Jan-Peer Henke of the German Vending Machine Association.
Why impose that burden? In spite of the hoopla about the arrival of the bank-notes, the economic performance of the euro hasn't been anything to cheer about. Since the launch of the electronic version of the currency in 1999, it has lost more than 20% of its value against the U.S. dollar. The inflation-wary European Central Bank in Frankfurt has frustrated almost everyone with its reluctance to cut interest rates, though the Continent is sliding closer to recession. Even amid last week's euro-phoria, the bank managed to be a source of discord. Back in 1998, the French thought they had a gentlemen's agreement that E.C.B. president Wim Duisenberg would resign soon after the introduction of the notes and coins, in favor of a French candidate--mostly likely Jean-Claude Trichet, governor of the Bank of France. Duisenberg, who is Dutch, now says he'll stay for at least one more of the four remaining years in his term.
For all the advantages a single currency offers--stable cross-border trade, ease of movement for people and products--it has also made Europe's economies more difficult to manage. The E.C.B. must set a single interest rate for both rural, still-developing countries such as Portugal and advanced industrial economies like Germany. Unlike governments in other vast currency areas--in particular, the United States--the European Union doesn't yet have the power to adjust for those regional imbalances with federal taxes and spending.
Europe's policymakers nonetheless hope to see the euro replace the yen and even the dollar as an international store of value. This week, German Finance Minster Hans Eichel is traveling to Iran and China to encourage central banks there to take in more euros as reserve currencies. It's probably true that the euro is undervalued by financial markets right now--but for the currency to really punch its weight, Europe may have to change in ways its citizens never expected and won't much like.
One of the orignal selling points of the euro was that it could make Europe a serious economic contender with the U.S., which Continental Europeans typically regard as a bit too capitalist and market-driven for anyone's good. Yet the whole logic of the euro undercuts the Continent's social-democratic status quo. "The euro is going to spur restructuring in most sectors of the European economy," says Christian de Boissieu, professor of economics at the Sorbonne. "It's like deregulation. In both cases, you end up with heightened competitive pressure and a squeeze on margins, leading to a race to increase market share and greater concentration." Encouraging companies to slim down and move where the market is may spur economic growth, but plant closings and layoffs usually follow. It remains to be seen whether Europe's politicians and voters are really ready to trade in the old social contracts and let the euro really work.
For the time being, though, the euro is more about visionary politics than quotidian economics. The dream of economic union began with the founding of the European Coal and Steel Community in the 1950s, when the bloody trauma of World War II was still a fresh memory. To finally get to a single currency, the 12 euro nations had to surrender some cherished symbols of nationhood. The Greek drachma, which circulated as far as Afghanistan in the age of Alexander the Great, and the modern deutsche mark, a symbol of postwar and post-reunification German strength, have been consigned to the dustbin of history.
But the euro offers its own powerful message: each member gets to mint the currency, so German-made coins, stamped with the nation's familiar eagle symbol, will circulate innocuously in France. Likewise, Germans will soon find Liberte, Egalite, Fraternite on some of their small change. "No more wars in Europe," says a hopeful Antonio Esposito, 54, a native of Naples who has lived in France for the past three years. "We know now that we will live in peace." And with some luck, prosperity too.
