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Fifty years after European leaders dreamed of uniting their nations to prevent another world war, 11 of the 15 member states of the European Union led by Germany and France will embark on a three year journey that will eventually lead to a single European currency. The formal introduction of the Euro, as the currency will be called, is scheduled for Jan 1, 1999. Starting then many prices, costs, expenses and the like will be calculated in Euros as well as national currencies. Actual paper currencies and metal coinage are to be introduced in 2002. This transition period will allow citizens and foreign residents of these countries the chance to acclimatize themselves to the value of the Euro. Thereafter, the national currencies of the participating nations will be retired.

So, what’s the big deal? Why are so many people excited, in the dark or worried? For Americans the concept of a single currency is quite natural. The US Dollar has existed for 209 years. It replaced a bevy of individual state, colonial and even foreign currencies used in the original 13 colonies until 1789.

For many Europeans, however, the homogenization of Europe, the amalgamation of scores of nationalities, cultures, languages, heritages and traditions cause concern: "Even our money is no longer ‘our’ money!" some Germans wail. European Union citizens of other nations like the Netherlands, Belgium, France and Spain don’t seem anywhere as concerned. In Germany, however, there are all kinds of fears about hard-earned D-Marks disappearing into a void, a financial black hole, destroying all of the hard-won benefits of 50 years’ DM reliability, security, and strength. After two unparalleled periods of hyper-inflation, two lost world wars and a global depression, Germans believe themselves to be justifiably concerned. They seem to fear change of almost any sort. However, the fears are groundless. If anything, the tough anti-inflationary requirements and rigid debt and interest controls on would-be Euro countries actually strengthen those nations’ economies (Germany included) forcing them to be fiscally more responsible. Italy, and France are prime examples where the non-convertible, non-extant Euro exercised good influence on the lire and franc and materially strengthened those economies during the past three years.

The fact that the Central European Bank will be physically located in Frankfurt lends the Euro an aura of greater stability as well. German financial institutions are spending fortunes reassuring their customers that the Euro is a good thing; that there will be no inflation, deflation, lost values, halved salaries or higher prices. Equity is safe.

For expatriates earning money or running businesses or travelling frequently in many European countries, the introduction of a unified currency will provide several important benefits. The most obvious is the expected reduction of currency exchange costs when changing monies. The values of goods and services remain constant as conversion costs are eliminated.

Viewed in economic bloc trading terms, Euro currency States should be able to reduce costs and prices to compete more effectively in other parts of the world. Given the highly competitive nature of Asian markets, third world producers, and service oriented economies, anything that enhances Europe’s competitiveness can only be positive.

Deutsche Bank Publications, a good source of information

In a series of publications, the Deutsche Bank, Germany’s largest financial institution, states how its clients will be served during the transition period from the D-Mark to the Euro. The brochures discuss and evaluate various aspects of the European Monetary Union agreements in layman’s terms. Timetables for conversion of assets and liabilities are provided. Although specifically trimmed to the DB’s products, they give a reliable idea of the sort of timetable anyone living and working in Germany should consider when reviewing their assets during the conversion to the Euro.

Basically, the Deutsche Bank recommends that all assets and accounts be left as D-Mark accounts until they are automatically converted. (That will happen no later than December 31, 2001.) For those individuals or companies dealing with partners who already are processing transactions in Euros rather than DM’s, the DB is suggests using corresponding currency. Unless there is a specific demand or situation requiring immediate conversion to the Euro, the Deutsche Bank sees no real need to initiate a change.

The only area of concern according to the Deutsche Bank is in the field of investments. Here less competitive or innovative companies in the Euro community may find that in a more accessible market, their deficiencies could work to their disadvantage. Detailed discussions about portfolio are called for in regard to all investments as certain companies may either prosper or decline more rapidly based on the vitality of the common currency.

By and large, Deutsche Bank is representative of the entire financial community endorsing the Euro. Obviously, somewhere in the system someone is going to lose money. The most apparent losers will be the money changers and exchange departments of the banks. However, with this very gradual changeover, new activity areas and positions within the banks will evolve. When and if the United Kingdom and other nations like Denmark come in, any other nation capable of qualifying will probably join in as well. After that, the degree of homogeneity and ease in trade and other commercial operations should make the Euro a contributor towards a more prosperous, positive European economy.

Of course the Deutsche Bank recommends a personal, in-depth discussion of specifics regardless of where you bank. Obviously, certain situations require careful monitoring which only someone with intimate knowledge of your accounts can provide, regardless of whether your dealing in Dollars, D-Marks or, henceforth, Euros.

How To Germany extends its thanks to Deutsche Bank for providing assistance with this article.

Fast Facts:

Participating Countries

  • Austria
  • Belgium
  • Finland
  • France
  • Germany
  • Ireland
  • Italy
  • Luxembourg
  • Netherlands
  • Portugal
  • Spain

Exchange Rates

Until the introduction of the actual Euro bills and coins, exchange rates of participating countries will be fixed in regards to the Euro. The Euro will float against the US$ and other international currencies. You will still be able to buy Deutsche Marks or any of the other currencies up until 2002. The actual exchange rate calculation will be a bit more complicated but there should be no significant change in current exchange rates unless the Euro fluctuates significantly against the Dollar. Any Dollar/Euro fluctuation will also be mirrored in the other participating currencies because of the fixed exchange rates.

Day to day effects

There shouldn’t be any major effects in the conduct of your daily business until the introduction of the actual bills and coins. Banks will automatically convert any transactions in Euros and show them on your account statement. You won’t need to set up an extra "Euro" account. You may be able to make payments in Euros through your bank. Many "Überweisung" (transfer) forms give you a choice of entering DM or Euro. Make sure when you select the currency that you don’t accidentally write in the wrong amount.

You may start to see prices in shops in both DM and Euros. (This has been common in France for quite some time.) If you can divide by 2 it should be pretty easy to convert DM to Euro. The official, fixed rate will be something like 1.997051. (This is the most current rate available at press time. Use it as a rough guide. It’ll probably change, but not by much. Rates will be officially fixed on January 1, 1999.)

The Big Picture

If you travel to other countries you’ll be seeing prices in both the local currency and the Euro. This is the popular "price transparency" that Euro advocates tout as a significant advantage to consumers. Instead of having to carry around conversion tables in your wallet, or committing to memory a variety of exchange rates, you’ll be able to directly compare prices throughout the participating nations. This price transparency is supposed to focus manufacturers on the price differences between the same products in different countries. It’s too early to tell what, if any, action manufacturers will take to try to make prices for different products the same (or at least close to the same) throughout the Euro zone. It’s hard to believe that the price for a Mercedes Benz or a kilogram of potatoes will suddenly be the same in Finland and Spain. The "price transparency" will certainly highlight the differences, though, and force some sort of action. Whether or not the actions taken will be of real benefit to consumers remains to be seen. Financial institutions and a few big companies (among them Daimler/Chrysler and Siemens) will shift in 1999 to Euro-based electronic transactions. If the Euro maintains credibility, it could transform Europe into one of the world's biggest and most efficient market places. The Euro market will be very big. It will have an economy almost as big as the United States' with combined annual output of $6.28 trillion, versus $8.1 trillion. It will be the world's biggest single exporter and importer.




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