Out With The Old and in With the Euro

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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. "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 Liberté, Egalité, Fraternité 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.