Regional Switch to a Common Currency Is No Small Change

In cables back home, a Brussels-based diplomat has been alerting his superiors that something big is coming--in his words, “the greatest experiment in political economy since the Russian Revolution.”

“This is the biggie,” agrees British economist Peter Coldrick, who works for the Brussels-based European Trade Union Confederation. “It’s going to affect all avenues of life.”

A year ago, there were as many skeptics as believers when it came to Western Europe’s plans for a single currency. But thanks to astute political compromising and the will of governments to pursue policies of fiscal austerity--plus a little creative accounting in some places--it now appears certain that the new money, to be called the euro, will arrive on schedule.

In less than four years, 290 million Europeans, from reindeer herders in Finland to sun-hungry vacationers in the Canary Islands of Spain, should be using the same money.

Francs, marks, guilders, schillings and other currencies will be phased out, to be replaced, starting Jan. 1, 2002, by euros.

Consumers are supposed to benefit from easier cross-border shopping and an end to currency exchange fees. According to one French study, a tourist who now sets out with $1,000 and changes the money to local currencies in all 15 European Union countries ends up with just $500 despite having bought nothing.

Changeover will be a vast, step-by-step process that begins Jan. 1, 1999, and lasts for more than three years.

According to the European Commission, 12 billion bank notes and 70 billion coins now circulate in EU countries.

New money will have to be minted and distributed, vending and automated teller machines retooled and prices refigured.

On May 2 and 3, leaders of the 15-member European Union will meet here to determine how many countries will be admitted to the euro zone.

On Wednesday, the European Commission, the trade bloc’s bureaucracy, endorsed 11 candidates: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.

The betting now is that all will make it, despite Italy’s debt load, which is more than twice that allowed for euro qualification.

Of the other EU members, Britain, Denmark and Sweden have opted out of the first euro wave, while Greece acknowledges that it must do more to meet membership criteria.

First declared as an official European policy goal in 1969, “economic and monetary union” is a milestone in ongoing efforts to build a new, more unified Europe.

Proponents view the euro, which will be worth about $1.08, as a lever to increase Europe’s competitiveness and economic weight in the world. It will foster job creation at home, they predict, and challenge the preeminence of the U.S. dollar globally.

In one fell swoop, the common currency will become the legal tender for countries whose combined economies are twice as big as Japan’s.

A new European Central Bank, to start operations July 1, is supposed to become the continental counterpart of the U.S. Federal Reserve as euro countries cede responsibility for monetary policy. Who heads the bank is still being thrashed out.

Initial changeover steps will be invisible to most Europeans and foreigners. Next January, the euro countries’ exchange rates among themselves and relative to the euro will be calculated and frozen and most public debt converted to euros.

Not surprisingly, many Europeans are apprehensive about relinquishing currencies as familiar to them as the greenback is to Americans. A poll last month found that 56% of French and 61% of German respondents believe that the euro will bring more headaches than benefits.

“It’s just another gimmick to help the rich get richer,” said Jose Romero, a Paris plumber.

In Germany, four academics, led by the former head of the state central bank in Hamburg, have filed suit to stop the euro. Their forecast: The euro will be weak, thereby threatening their property rights and those of other Germans.

On Friday, the Bundesbank, Germany’s central bank, gave a tepid endorsement for admitting all 11 candidate nations immediately but warned that high levels of public debt in Italy and Belgium could undermine the new currency’s stability.

EU Commissioner Karel Van Miert concedes that the euro’s launch may be “painful and difficult” but calls the common currency “absolutely necessary.”

“It changes Europe,” he says, and “makes it a more competitive place.”

Times researchers Reane Oppl in Bonn and Maria De Cristofaro in Rome contributed to this report.

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Growing Economic Punch

Most nations in the European Union will share a single currency, the euro, beginning Jan. 1, 2002. From guilders to marks, the currencies of the 11 likely euro zone nations will be phased out beginning Jan. 1, 1999, when conversion rates will be locked in.

* One pilot coin design features a map of the European Union against a background of lines and stars on one side. The design for the other side will be left to each nation to decide.

* Coins will be available in eight denominations. Most coins will contain copper, but the 1 and 2 euro coins will also have nickel.

*

Countries expected to be admitted to euro zone:

Portugal

Spain

Ireland

Belgium

France

Netherlands

Austria

Germany

Luxembourg

Italy

Finland

*

1995

December--European Union leaders set calendar for introduction of a single currency, opt for the name “euro.”

1998

May--Euro zone member states to be chosen and European Central Bank (ECB) established

1999

January--Conversion rates lock in for euro zone currencies; euro becomes a currency in its own right, though coins and bills will not yet be available.

2002

Jan. 1--Euro bills and coins put in circulation. National currencies remain legal tender for up to six months.

July 1--National currencies are to be totally withdrawn from circulation by this date. The new money becomes the sole valid currency throughout the euro zone.

Sources: European Commission, Bank of England; researched by CHRIS ERSKINE / Los Angeles Times