11 Nations Launch Euro in Historic Bid for Unity

Western Europe today took its greatest stride toward unity in four decades when it officially launched the euro, its first common currency since the Roman Empire two millenniums ago.

The historic commitment by Germany, France, Italy, Spain, the Netherlands and half a dozen other nations is meant as the capstone for the borderless economy that governments in Europe have been constructing, in fits and starts, since the dark years after World War II.

It will be three more years before euros--in the form of bills and coins--reach the public’s hands, and until then the familiar German mark, French franc and other national moneys will remain in use.

But as of today, they are only denominations of the euro, which becomes the official basis for all stock and bond trading and for many noncash transactions like credit card charges or dealings between businesses.

Overnight, the euro establishes the second-largest economy in the world, surpassed only by the United States. Stretching from the Austrian Alps to France’s tropical island possessions in the Antilles, the euro zone will have more consumers than America--290 million--and account for a greater share of the world’s exports.

The initial value of a euro was set Thursday in Brussels by finance ministers of the participating countries at $1.16675 and 132.80 yen. That means it will begin trading at around $1.17 when markets reopen Monday after the New Year holiday weekend.

“I’m proud to be able to call myself a European citizen, born in Italy,” declared Italy’s veteran treasury minister, Carlo Azeglio Ciampi. “That is what I feel like today.”

To celebrate the moment, Belgian schoolchildren released 3,000 balloons emblazoned with the euro symbol at European Union headquarters. With the euro’s value relative to national currencies now locked in, tens of thousands of employees in banks, stock brokerages and businesses across Europe rolled up their sleeves for what should be a long weekend of converting computer programs and business records to euros.

The euro’s birth has been an occasion for high rhetoric. The Financial Times, the customarily phlegmatic London business newspaper, calls it the “most far-reaching development in Europe since the fall of the Berlin Wall.”

‘Everything to Gain and Little to Lose’

Helmut Kohl, a prime mover in the process during his 16 years as Germany’s chancellor, said: “In politics, we speak of once-in-a-lifetime events. EMU [European economic and monetary union] is exactly one such event.”

The euro is also welcomed by the United States, even though it will provide an alternative to the American dollar for international trade and central bank reserves and will very likely challenge the greenback’s global preeminence.

“Let me state my conclusions at the outset: We have everything to gain and little to lose from the success of this momentous project,” U.S. Deputy Treasury Secretary Lawrence Summers reassured a business audience in November, noting how greatly the European and American economies are intertwined.

The battle for the euro has been long and bitter, chiefly out of fears that Europe’s ancient nations would lose control of their own affairs.

Billions in Exchange Fees Will Vanish

But on paper, the economic advantages of the common currency seem clear: Because there will be only one form of legal tender inside the single currency zone, billions of dollars in exchange fees and other transaction costs will vanish.

Consumers will be able to instantly compare prices in Belgium or Portugal. In consequence, competition should intensify, to the public’s benefit. To brace for the shock, there has been a rush of corporate mergers and restructurings, some spanning the Atlantic.

Many financial specialists also foresee a big bang in the capital markets, meaning a far bigger source of equity financing than European firms now enjoy. At present, exchanges in the 11 euro countries combined list an estimated $2.9 trillion worth of stocks, compared with $12.8 trillion on the New York Stock Exchange alone.

Clearly, all these developments are going to be accompanied by a great deal of what might be called “euro confusion.”

Obsolete Money to Be Shredded, Melted

“Everything went too quickly, people are very confused, there is not enough information,” Giacomo Bonnani, a doorman on Rome’s Piazza Di Spagna, complained. “I think it would have been better if they had introduced the dollar instead of the euro. At least it’s a familiar currency.”

Pieces of history will vanish, relegated to museums and private collections. The French franc, a coin struck for the first time in 1360 to celebrate the successful ransoming of a king taken captive by the English, and the German deutsche mark, a trusted symbol of stability and postwar economic power, will be pulled from circulation in mid-2002 and replaced by the euro.

The obsolete money will be shredded or melted down: in the case of the mark, 2.6 billion bills and 87,000 tons of coins.

Large banks, retailers and other institutions are converting their internal accounting to the euro immediately. Euro zealots will be able to get euro-denominated credit cards, checking accounts and traveler’s checks.

But merchants aren’t obligated to accept payments in euros before Jan. 1, 2002, when bank notes and coinage in the single currency start becoming the sole coin of the “Euroland” realm. The process is to be complete by mid-2002, when the old money is recalled.

“People are expecting thunderous change, but the surprising thing will be that nothing surprising happens on Jan. 4 [the first business day for the euro],” said Andrew Hilton, director of a financial think tank in London.

Perhaps the deepest long-term effect will be on Europeans’ thinking and sense of self.

“Money is important in our lives; unfortunately, almost everything can be put into monetary terms,” explained owner Tanguy Roelandts of Chocolaterie de Peyricard, a chocolate maker in Aix-en-Provence in the south of France. “If people can speak in a single currency, then they become part of a single economy. And it is then that Europe becomes a reality.”

In the context of the often tumultuous history of the Old World, washed repeatedly by “rivers of blood,” in Winston Churchill’s vivid phrase, the euro experiment, even if it fails, is astonishing.

“There is a real abandonment of sovereignty,” Belgian Finance Minister Jean-Jacques Viseur said. “It will be an extraordinary acceleration of the European process.”

How extraordinary? Consider this: Three times in the past 130 years, men of the De Silguy family have left their home in the French province of Brittany to fight German invaders--in the 1870 Franco-Prussian War and in the world wars of this century.

“I am the first generation for centuries to reach the age of 50 without having fought somewhere in Europe,” reflected Yves-Thibault de Silguy, their descendant. A high-ranking civil servant and diplomat, De Silguy is a member of the Brussels-based European Commission, which was responsible for bringing the euro project to fruition.

“Imagine for just a minute if you had 50 currencies in the United States, one per state,” he told an American reporter. “When you go from Washington to Los Angeles, you cover around 3,000 miles, and they don’t ask you for your passport on departure or on arrival. And your dollar is good in Washington and in Los Angeles.

Now, De Silguy predicted, “It’s going to be the same for Europeans.”

Nobody really doubts that the euro is a watershed, even if opinions clash about its future. Baroness Margaret Thatcher, the former British prime minister--who is dubious about airy-fairy European ideas--has predicted that the venture will collapse in three years. U.S. economist Martin Feldstein has said the new money could lead to war, either between countries using it or between Europe and the United States.

Some euro nations, shorn of their power to print money and influence its value, may be tempted to compete with their neighbors by granting tax breaks and relaxing business regulations. Already, German Finance Minister Oskar Lafontaine has demanded uniform minimum tax rates so the process doesn’t spin out of control.

And, though there is no legal provision for withdrawing from the euro, no one knows what might transpire if prolonged recession were to strike one member in the economically diverse euro zone, like Ireland or Finland, while others prosper. The tensions could sunder the euro zone, or rekindle the nationalist passions that European unification is supposed to defuse.

“I believe we are aboard the Titanic,” a French foe of the single currency, Interior Minister Jean-Pierre Chevenement, said gloomily last spring. “We can only pray and sing for Europe, ‘Nearer My God to Thee.’ ”

Skeptical about the wisdom of the enterprise, three of the 15 EU nations--Britain, Sweden and Denmark--are electing to keep their own national moneys, at least for the immediate future. A fourth, Greece, keenly wants to adopt the euro, but it flunked the economic and budgetary requirements when the membership list of Euroland was selected last May. It will try again this year.

In an irony of history, the introduction of the new money is being overseen largely by politicians who either once opposed it as an unthinkable surrender of national sovereignty, like French President Jacques Chirac, or who never showed much zeal for it, like German Chancellor Gerhard Schroeder, who unseated Kohl in September.

But advocates, who greatly outnumber doomsayers on the European continent, say the pooled money will bring greater prosperity, an increase in their region’s influence on the international stage, and impetus for its peoples to grow even closer. The euro area could greatly expand with time, even encompassing 10 central and eastern European countries and Cyprus, which are now negotiating entry into the EU.

“Stimulated by the euro, Europe is on the move,” declared Jacques Santer of Luxembourg, president of the European Commission.

In mid-December, a Louis Harris poll in France, Germany, Italy, Portugal and Spain found that 73% of the people surveyed believed the euro will be “a good thing” in their daily lives. (In Britain, on the other hand, a poll found that 53% of the people questioned opposed the euro, believing it to be a Trojan horse for the higher taxes paid by many of their neighbors on the Continent.)

The European Commission calculates that business in the 15-member EU will save about 0.5% of the total gross domestic product--$40 billion a year--by not having to pay commissions to switch from one European currency to another or to hedge against a sudden swing in exchange rates.

Energized by the euro, Western Europe may also finally grow enough jobs to meet its longest-standing social challenge: finding work for the 16.8 million people who are now out of work. The jobless rate in the European Union is currently 9.8%, more than twice as high as in the United States.

The French especially see the euro as a geopolitical lever to liberate themselves and their neighbors from the political and economic domination of Washington.

“It will be the means for Europeans to affirm themselves in the management of world economic affairs,” Finance Minister Dominique Strauss-Kahn said.

Without a doubt, what monetary experts call the first true common European currency since the coins of the Romans is the most ambitious step toward continental integration since the 1957 Rome Treaty, which created a “Common Market” of half a dozen member nations.

The process ultimately led to the pact, signed in 1991 at Maastrict in the Netherlands, which established the European Union and mandated the start of the shared currency by today. But as recently as two years ago, many doubted the ambitions expressed at Maastricht could become reality.

“Probably historians will admit in 100 or 200 years that the project of the euro was not necessarily born in the minds of economists--it was born 20 to 30 years ago in the minds of politicians,” Gustavo Piga, professor of economics at Italy’s University of Macerata, said.

“They didn’t want a third world war starting on the border of France and Germany. What they really wanted to do with a European currency was provide an element to link the two countries even more tightly.”

In the ever-more-competitive global economy, the new money should be bitter but badly needed medicine for European companies no longer able to exploit devaluations in their home currencies that make their goods cheaper to sell abroad. Some analysts foresee a great shakeout, and despite rosy predictions from politicians, doubt there will be a pickup in hiring in the near future.

“The implementation of the euro will exert enormous pressure on governments,” said Eckhard Schulte, senior economist in Frankfurt, Germany, for the Industrial Bank of Japan. “The country with the most flexible economy wins.”

Far from being a silver bullet for Europe’s economy, many specialists say, the euro now puts the onus on leaders of member countries to cultivate labor forces more willing to move where the jobs are, to give companies and unions more latitude in fixing work schedules and conditions, and to cut taxes on businesses used to fund Europe’s generous social security and pension programs.

“If politicians believe the euro will be the cure-all for all of Europe’s economic ills, they’re wrong,” Schulte said. “They have to do their homework too.”

Valery Giscard d’Estaing, former president and finance minister of France, was central in negotiating a forerunner of monetary union, the 1979 European Monetary System, which limited the amount by which participating European currencies could fluctuate in relation to one another.

Now 72, the French elder statesman salutes the euro as a “signpost on the road to a federative Europe.”

“Getting used to it is not going to be easy in daily life, but there is no way back,” Giscard said. “A new epoch in Europe’s life starts Jan. 1.”

*

Times researchers Christine Winner in Paris, Maria De Cristofaro in Rome, Janet Stobart in London and Christian Retzlaff in Berlin contributed to this report.

* THE HOLDOUTS: European countries not participating in the new currency must still prepare for it. C1

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Birth of an Economic Giant

The 11 countries that have declared a common currency, the euro, now make up the world’s second-largest economy, rivaling the United States.

Share of World GDP

Euro zone: 24%

U.S.: 26%

Japan: 16%

Others: 34%