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Many business executives around the Continent tell a similar story. At French hotel company Accor, executive vice chairman Benjamin Cohen says the absence of exchange-rate risk makes investing in places like Italy and Spain far easier. "The element of chance has disappeared," he says. Companies in Greece, Spain, Portugal and Ireland have benefited from a sharp decline in interest rates on their debt since joining the euro. While some retail prices did rise, "the balance of cost and benefit is so much on the benefit side, while the costs are small and temporary," according to Ulysses Kyriacopoulos, who runs a family-owned Greek mining company and chairs the Federation of Greek Industries.
Economists say it's impossible to quantify such benefits. But Jean-Paul Betbèze, an economist at France's Crédit Agricole, says the biggest effect is a psychological one, brought on by the European Central Bank's mandate to keep inflation in the mid-term at below 2%. "The stability of money is in people's heads," he says. "That's very important because it has an impact on wages, prices and competitiveness."
At the same time, the euro hasn't entirely insulated European companies from exchange-rate risks. Over the past 10 years, many firms have expanded beyond Western Europe to Asia and other places that trade using dollars. For example, Germany's huge machinery industry has seen its sales to China more than double over the past three years, to €6 billion annually, while sales to euro-zone countries have declined slightly. While the euro was weak against the dollar in its earliest days, "it was like sweet poison," says Ralph Wiechers, chief economist at the German Engineering Federation, because it allowed firms to export more competitively. After its 40% appreciation against the dollar in 2002 and 2003, the euro's current strength has the opposite effect: it gives noneuro rivals an edge.
[TRADE] One of the least expected benefits of the euro has been the boost in trade among countries that use it. When plans for the single currency were first created by the E.U.'s 1992 Maastricht Treaty, most economists didn't focus on that possibility. But groundbreaking work in 2000 by Andrew Rose, a professor at the University of California, Berkeley, showed how trade had risen substantially following monetary unions elsewhere. He calculated that in Europe, trade among euro-zone nations could increase by as much as 300%. Rose cautions that the number is theoretical, based on the experience in much poorer countries. But the first studies suggest he could be right about the trend, if not its dimension. Two recent studies by economists at the Inter-American Development Bank show that those countries joining the euro saw a boost to their trade ranging between 8-16%. And Britain, which didn't adopt the euro, has also seen some trade benefits but far less than if it had joined the club. Rose says that while it's too early to have a definitive view about the total impact, he expects trade "will probably continue to rise for a long time yet." Still, he adds, "it's unclear that the benefit of increased trade is enough to offset the costs of losing [control of] monetary policy."
[INTERNATIONAL ACCEPTANCE] The euro isn't about to take on the dollar as the world's favorite currency, even if some initially thought it would. "Don't be fooled. This meek and mild-mannered Clark Kent of a story is really the Superman of financial news," commented Walter Russell Mead, a senior fellow at the New York City-based Council on Foreign Relations in 1999, warning that things "could turn ugly fast" for the dollar as international investors snapped up euros. Such claims were given credibility by the Nobel prizewinning economist Robert Mundell, who predicted around the same time that by 2010 the euro area would be bigger than that of the dollar and its growing role would likely provoke some tough policy reactions in the U.S.
The euro has gained some ground, but it is still far from threatening the dollar's pre-eminence. The amount of euro-denominated bonds as a share of the global total has risen from about 20% in 1999 to 30%, while bonds denominated in dollars have remained at around 45%. But the euro has conspicuously failed to take off as a currency used in foreign-exchange transactions. Globally it accounts for between 20-25% of the foreign-exchange market, which is about the same as the national currencies that made up the euro. Jean-Claude Trichet, the European Central Bank's president, blames that on "inertia." But others point to the critical absence of Britain. If Europe's leading financial center were in the euro, they argue, the currency's status and usage would rise substantially.
For all these early results, most economists caution that it's still too early to measure the full impact of the euro. "We always said it would take at least a decade," says Gros of the Center for European Policy Studies. He still believes that replacing national interest rates with the single euro rate will lead to stronger growth and investment. But that's a long-term forecast and, as the British economist John Maynard Keynes once famously said, in the long run we are all dead. Europeans like the bargain-seeking people of Passau would like to see some tangible results before then.