Europe Is Putting Its Money on the Euro

Pinstriped bankers, busy housewives and even black-market cigarette dealers were elated when Montenegro dumped the nose-diving Yugoslav dinar and adopted the German mark as official legal tender last November.

The switch wiped out inflation so explosive that the price of a mere beer would often skyrocket between the first and second round of drinks.

But another upheaval is approaching for Montenegrins. On Jan. 1, their cherished mark is going to the grave--along with 11 other currencies that are being replaced by one, the European Union’s euro.

That is producing widespread confusion in this Yugoslav republic and other countries that are the forgotten frontiers of history’s biggest money swap--states that are not part of the official euro changeover but that are dependent on foreign currency.

“How’s this going to work?” asks Sandra Milanic, who hawks cell phones, calculators and alarm clocks at a dusty open-air market outside Podgorica. “I don’t even know when the changing date is.”

Transition Anxieties Over New System

Milanic is not alone. Millions of people in dozens of countries outside the official euro bloc are uncertain what they will do with the soon-to-be-defunct Western coins and notes they use in daily transactions.

Germany’s central bank, the Bundesbank, estimates that 30% to 40% of the 278 billion marks in circulation are being used in other countries. That’s about $40 billion to $50 billion in marks outside Germany.

In Kosovo, Bosnia-Herzegovina and Montenegro, the mark is accepted as official currency, and in places such as Turkey, Russia and Poland it functions as a parallel currency and a safe haven from inflation for family savings.

Likewise, millions of French francs serve as legal tender outside continental Europe in such places as French Guiana and the Caribbean islands of Guadeloupe and Martinique.

All those places will have to adopt the euro too. And if the switch-over is botched, it could undermine already fragile economies or leave misinformed people holding millions in worthless paper.

The European Central Bank, which oversees monetary policy of the euro zone from its headquarters in Frankfurt, Germany, has arranged for many of those places to receive new euro cash beginning Dec. 1--three months behind the official euro countries.

Unlike people in the 12 EU members using the euro who have been bombarded by public awareness campaigns, many citizens on the fringe don’t even know the euro is on the horizon.

“People could seriously get caught napping,” said Mark Wheeler, a consultant with International Crisis Group in Sarajevo, Bosnia. “They could find their savings suddenly worthless.”

By the end of January, 14.25 billion euro bank notes representing 642 billion euros, or about $590 billion, will have been issued--but targeted mainly at the 300 million people in the official euro countries.

Spreading the Word

The race is now on to make sure people outside the bloc are up to speed too.

Montenegro and Bosnia plan public relations campaigns, and the European Central Bank will send road shows throughout non-euro countries.

Despite the short lead time, Montenegrin Central Bank governor Ljubisa Krgovic is confident his country’s scrappy entrepreneurs and streetwise shoppers will adjust easily to the new currency--especially after years of black-market money changing during the previous decade of inflation.

But he admits the details remain fuzzy. For instance, Montenegro is still undecided whether to follow Germany in having a two-month phase-in when people can simultaneously use marks and euros, or stretch it out to March or April as the Bundesbank recommends.

Krgovic also doesn’t know exactly how many euros the country will need, because there is no way to accurately tally how many marks are being used by Montenegro’s 600,000 people.

Marks deposited in banks will be automatically converted into euros. But that only accounts for about 150 million marks ($70.5 million). It’s estimated another 150 million marks are stashed elsewhere, but no one knows for sure.

“It would be better if we had more time,” Krgovic said. “But we are a small country, and our people have a lot of experience changing currencies and working in two at a time.”

But this time there’s a big difference.

German marks had been circulating in Montenegro for decades before the government finally adopted them as the official currency. People knew how to spot fakes, and the government didn’t face the logistical nightmare of stocking banks, stores and vending machines practically overnight.

This time, many people will have no idea what a real euro looks like.

That could mean an outbreak of counterfeiting and swindling, especially in freewheeling regions like Montenegro, warns Nebojsa Medojevic, head of the Podgorica-based consultancy Center for Transition.

“The switch from dinar to German mark was a small operation. This is a massive process,” Medojevic said. “This is coming tomorrow with no preparation.”