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Banking on the euro

Print edition : Jan 19, 2002 T+T-

A rosy future is widely foreseen for the new currency, which is being received in Europe with mixed emotions.

DA GIGGETTO'S restaurant in the capital's "ghetto ebraico", a stone's throw from the Coliseum, is a favourite haunt of people looking for authentic Roman Jewish cooking. Its fried artichokes "alla giudea", stuffed zucchini flowers and roast lamb with wine and rosemary are sought after.

Luigi, now nearing retirement, has been working at the restaurant for the past 30 years. It has not been a pleasant New Year for him this time. "Usually at this time I'm the happiest man on earth. But this year, it's been hell. I cannot even begin to tell you the headache and the chaos this changeover to the euro has caused," he says. "Firstly, we had been given instructions that we had to take in the old liras and give back change in euros. Our clients grumbled, the banks were unable to give us enough euro coins, and there were these huge delays. You know, our prices are low and we depend on a quick turnover of tables for our profits. We handled 30 per cent fewer clients because of the delays this past week and my tips just dried up."

Until the euro crisis settles down, the restaurant has decided to return change in liras to customers who pay in liras and in the new currency to those who pay in euros. "We've just had to set up two separate cash boxes. We were going dizzy," explains Luigi. "I know it's illegal, but there was no way out. It's for the government to make sure that the banks give out sufficient quantities of euros. We are poor, honest hard-working people here. We don't have the time to wait in long queues at banks and post offices. We also have to keep our clients happy."

Luigi's dirge is taken up by an extremely irritated taxi driver, who does not stop grumbling from the moment he picks me up at the restaurant until he drops me off at my hotel, where a long quarrel begins. I have not been able to buy any liras - no longer issued as legal tender - and can only offer him euros or French francs. He wishes to give my change in liras but I am not having any of that. "I don't have change in euros. You don't expect me to make the coins at home, do you?" he says rudely, slamming his door and stomping off to find change. Two newspaper vendors and a spin around the block later, we are back where we began. My hotel concierge finally digs into his own pockets to find the required change and the driver vrooms off angrily in a cloud of exhaust.

The thunderclouds in the sky seem to have settled upon the Italians' hearts and minds. Italy will be the litmus test not just for the euro but for the future of European construction. Italy has always been enthusiastic about Europe; it has even gone to the extent, certain reports indicate, of cooking its books to meet the draconian qualifying criteria laid down in the 1993 Maastricht Treaty for entry into the euro regime. However, the new government led by media magnate Silvio Berlusconi seems otherwise inclined.

A day after the new currency came into force, Umberto Bossi, the maverick, raucous, rabble-rousing leader of the Lega Nord, Italy's populist anti-foreigner party and a senior Minister in Berlusconi's centre-right coalition government, bluntly said: "I don't give a damn about the euro." Similar sneering remarks about the new currency were made by other members of the government. The Allianza Nazionale, the reformed former fascist party, is also part of the euro-sceptic league that has come to dominate Italian politics ever since Berlusconi became Prime Minister eight months ago. The long-brewing crisis has now come into the open with the widely respected Foreign Minister and former head of the World Trade Organisation (WTO), Renato Ruggiero, throwing in the towel. Berlusconi, who is also Italy's wealthiest man, has now taken over the Foreign Affairs portfolio himself, a development that other European leaders are not too pleased with.

If Italy had the sulks, France was all sparkle and joy (except for the small wrinkle caused by striking bank personnel). In Paris the euro received a joyous, even tumultuous, welcome. However, the smoothest transition from the national currency to the euro occurred in Germany. "We were utterly surprised at how quickly Germans adapted to the euro," investment broker Dietmer Bordas told Frontline over the phone from Frankfurt. "All the opinion polls had indicated that over 50 per cent of the population here was hostile to the new currency. The government therefore decided on a sudden switch. Marks stopped being legal tender as of Day One. I think that was wonderful. Because, with typical German efficiency, everything was in place and the operation was a tremendous success," he said.

The euro was conceived as a rival to the dollar. But it has not lived up to expectations thus far, often dipping as low as 83 cents to the dollar. Its birth in real terms (the euro has been around in the form of cheques and bank transaction for two years) on New Year's Day saw a tremendous surge in its price against the dollar. "It's now just a matter of time before the money finds its real rate against the dollar. We shall see it's not as weak as the Americans make it out to be," said Olivier Pisano of the bank Credit Lyonnais.

Some 307 million people now use the euro, making it Europe's most widely used single currency since the time of the Roman empire. Many currencies, in Francophone Africa and in eastern Europe, have been pegged to the euro, and analysts see a rosy future for the new notes and coins.

"I do not understand the British, the Swedes or the Danes who did not want to join. The problems they have raised are specious and emotional. Before long the Brits will realise how much they are missing out on. Then they will be clamouring to join," said Adrien Letore, an economics student at the Sorbonne in Paris.

"We were afraid the introduction of the euro would lead to inflation and fraud. There has been some of that but it's very limited. Globally, I think people are very happy. My generation is certainly very excited about what we have already begun to call 'our money'. I see no problems at all," he added.

MOST economists agree that the switch to the euro is a major step towards the creation of a European identity. Says analyst Didier Schwarzberg: "In terms of pure economics, this makes no difference at all. In a vast country like India, you have pockets of great underdevelopment cheek by jowl with rich States or cities. The distribution of wealth is uneven. So also with Europe. So, to say the euro will lead to uneven development is untrue. Rates of interest will be streamlined and bit by bit the taxation policy will be harmonised too, both in terms of sales tax and in terms of income tax. We must now show greater political will and build a common foreign and defence policy. That is urgent. It is in this context that Mr. Berlusconi's euro-scepticism, despite his protestations to the contrary, becomes worrying."