Europe Segues Into the Euro

The euro, the new European currency with worldwide pretentions, charged into global markets for the first time Monday, touching off a boomlet on continental stock exchanges and appreciating quickly in value against the U.S. dollar.

“The Euro Right Away Challenges the Dollar’s Hegemony,” trumpeted a headline in Le Monde, a Paris newspaper, Monday afternoon.

“The day is historic. Let us congratulate ourselves without an excess of modesty,” said Jacques Santer, president of the European Commission.

As 11 Western European nations segued into using the new shared money for stock and bond trading and other noncash transactions, widespread fears of computer chaos proved groundless.

But analysts said several more days of trading would be needed before dealings in the newfangled currency could be declared trouble-free. It won’t be until Jan. 1, 2002, that cash euros, in the form of bills and coins, start circulating in the 11 countries.

Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain form the euro zone.

In a display of confidence in the still virtual money, the first day of trades priced in euros triggered a 5.2% surge in stock prices in Paris; 5% in Frankfurt, Germany; 6.4% in Milan, Italy; and 6.2% in Madrid, the Spanish exchange’s best one-day performance since January 1991, according to their blue-chip indexes.

The value of the new currency also went up, from just under $1.17 as set by European finance ministers last Thursday to slightly more than $1.18 at the end of trading Monday in London, the world’s leading currency-exchange market.

“Euro markets have done better than non-euro markets,” Michael Saunders, head of Western European economies at Salomon Smith Barney/Citibank investment bank in London, summed up at the end of trading. “Bonds have strengthened, equity has strengthened, and currency has strengthened.”

But analysts said much more time would be needed to determine the euro’s precise relationship to the dollar. Saunders noted that Monday’s volumes were moderate.

“I compare it to new stock on the market,” said Juergen Barthel, a foreign currency trader for Frankfurt-based Dresdner Kleinwort Benson. “People tend to overwrite it at first--we expect a strong demand at first.”

For the previous four days, staffs at banks, brokerages and exchanges throughout Europe had been laboring to rewrite bank accounts, stock certificates, computer programs and other records in euros.

“The conversion worked way better than expected,” reported Carsten Samusch, head of trading in eurobonds at Commerzbank in Frankfurt. “We had to convert 4,000 bonds in two different computer systems. . . . Well, with 30 of the 4,000 bonds, there are some minor calculation differences between the euro and the deutsche mark, but this is fewer than we expected.”

“People are not cautious but very confident, I’d say,” said Piergiorgio Manavella, who spearheaded euro conversion operations at Italy’s San Paolo bank.

On the Amsterdam Stock Exchange, the only unscripted excitement was an assault on visiting Dutch Finance Minister Gerrit Zalm by euro protesters carrying cream pies. They scored two direct hits.

One pie-thrower complained to Dutch television that it was the poor people of Europe who had suffered as governments reduced social spending to keep their budgets and economies in line with the criteria laid down for users of the euro.

In London, champagne corks popped as workers in the financial district celebrated the end of a grueling but successful weekend of euro conversion. Britain is one of four European Union members not adopting the euro, but London banks and other financial firms are so heavily involved with euro countries that they must be ready to use it.

Some European currency traders are forecasting a surge to a $1.22 euro within days. Europride notwithstanding, a pricier euro would have the drawback of making European exports more expensive.

Analyst Saunders forecast continued investor appetite for the new currency, given Europe’s sound economic fundamentals.

“The euro area has probably the best prospects of any good-sized trading bloc for a combination of reasonable growth, low inflation and reasonable profits growth,” he said.

Meanwhile, the 290 million inhabitants of the 11 euro countries are getting used to the new money, even though they continue to use francs, marks, guilders and lire for cash. Leading stores began marking prices for their wares and services in euros as well as the local currency.

On Sunday, Munich’s fire department became one of Germany’s first official institutions to use euros by announcing that a Christmas tree that had caught fire did 35,000 marks, or 17,500 euros, in damage.

And in the southern Italian port city of Naples, smugglers who sell contraband cigarettes also have been quick to embrace the new currency, marking their wares at 10,000 lire, or 5.16 euros, for three packs.

“Naples is filled with tourists at the moment. It seemed right to show we are keeping up with the times,” one smuggler explained to a local news agency. “It may make them prefer my stall to others.”

Maria De Cristofaro in The Times’ Rome Bureau, Christian Retzlaff in the Berlin Bureau and Janet Stobart in the London Bureau contributed to this report.

Markets Cheer Euro

Most European stock markets soared on Monday with the dawn of the new euro currency. Price gains Monday in key indexes, and their 1998 price gains, in native currencies:

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Monday 1998 Market/index percent change percent change Greece/ASE +6.7% +85.0% Italy/MIB-30 +6.4 +40.9 Spain/IBEX +6.2 +35.6 Paris/CAC +5.2 +31.5 Germany/DAX +5.0 +17.7 Finland/HEX-Gen. +4.9 +68.5 Netherlands/AEX +3.8 +22.3 Sweden/OMX +3.7 +16.9 Ireland/Overall +1.6 +23.2 Britain/FTSE-100 -0.1 +14.6 U.S./S&P; 500 -0.1% +26.7%

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Source: Bloomberg News