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Euroland or Bust

Picture this: On January 1, the dollar is extinct and all prices are in zlotys. Sounds scary, right? Yet 11 European nations and 290 million souls are about to perform just that kind of experiment.

By Robert Kunzig
Oct 1, 1998 5:00 AMNov 12, 2019 4:26 AM


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As I write, I am staring at the Money Bunny. It is a brown and hairless old thing, rubbed smooth over the years, and it stares back at me with one plastic eye slightly popped. The bunny is fairly bursting. When I return from foreign trips, I empty my pockets into it, through the slot on its back. Before leaving again, however, I never remember to extract the appropriate currency. The bunny thus has a cash-flow problem.

I decide to pull the little plastic plug from its bottom. A thick bolus of British sterling stanches the flow at first, solid and heavy, each coin bearing the crowned profile of Elizabeth--as a young woman on the oldest ones, later as a handsome matron, but always and ever the Queen. German marks come next, and German eagles, strangely atavistic in a nation that today is so pacifist: on the 5-mark piece, the raptor's feathers and claws are splayed and its tongue is sticking out, as if it were about to kill or had just been electrocuted. Either way it looks severe. A 25-peseta coin from Spain follows the marks; it has a hole in its center. The 5-peseta coin shows a costumed man who is either stomping grapes in the Rioja or dancing on stilts, it is hard to tell which.

And then there is the Semeuse--the sower--who adorns the French franc. Her long hair is blowing from beneath her Phrygian bonnet (a Revolutionary symbol of emancipation); her dress clings in gauzy folds to her long, graceful legs. She is walking across a field at sunrise, and with a careless wave of her right hand she is scattering seed from a bag held in her left--she is scattering it into the wind, which seems significant somehow. Perhaps it's just that I'm a Francophile, but to me the franc is the perfect coin. It doesn't commemorate a fossilized monarchy or a warlike past; it celebrates life, and what life here in France is supposed to be: sensual, dignified, humanistic. I once inadvertently tried to slip 10 pesetas to Annique, the young woman in the bakery who hands me my baguette every morning. She spotted it almost before the tinny little thing clinked into the dish on her counter.

People have a feeling for their money. You know what a nickel, dime, or quarter feels like in your pocket, and what many of them feel like in your bank account; Annique knows a peseta from a franc, by sight, sound, and touch. Not long ago I asked her what she thinks of the euro, the new European currency that will soon supplant the franc and other national currencies--electronic transactions in euros begin January 1, and the new coins and bills will follow three years later. She did not feel like talking about it. "It will be hell," she said.

The first coin called a franc was minted in 1360. It showed King Jean le Bon, triumphant on horseback. Actually, Jean had just been released from an English prison, about a quarter of the way through the Hundred Years' War, after swearing to pay a ransom of 12 and a half tons of gold, which he did not have. The solution was to tax his people. In return, Jean promised them a strong and stable currency--hence the figure on horseback, on a coin of gold. The franc is made of nickel now, but it has endured as a national currency--with long interruptions and changes of form-for 638 years. (So have the taxes.) Sometime next year, from his tall-windowed office overlooking the Seine, Emmanuel Constans, director of the Paris mint, will preside over the minting of the last franc. He says he will regret it not a bit.

Tall, polished, silver-haired, and fiftyish, Constans is a senior functionary of the French Ministry of Economics, Finance, and Industry. He is also a convinced European who spent six years at the European Commission in Brussels. Two weeks before I met him last May, government leaders had gathered in Brussels to proclaim the 11 countries that would be part of "Euroland" next January: Germany, France, and Italy; Belgium, the Netherlands, and Luxembourg; Spain and Portugal; Ireland, Finland, and Austria. Three of the 15 countries in the European Union--Great Britain, Denmark, and Sweden--had decided not to join yet; Greece wanted to but was provisionally excluded because its budget deficit, public debt, and inflation rate are too high. Just four days before I met Constans, the first euros had been minted at the Paris mint's modern plant outside Bordeaux. The French people may have approved the Maastricht Treaty (which in February 1992 firmly committed the European nations to monetary unity) by a margin of only 51 to 49 percent, but the French mint had now been the first on the continent to make the thing itself.

The six years of preparation had been necessary for the continent to agree on what the thing should look like, what it should be made of, and what it should be called. Everyone assumed--to take the last question first--that the common currency would be called the écu. This was the name of a medieval French coin, and if you wrote it ECU, as the Germans preferred to, it also stood for European Currency Unit-the weighted average of national currencies that already serves as a unit of accou-nt in European institutions. It turned out, though, that the German government never liked the word. At a summit meeting in 1995 Chancellor Helmut Kohl insisted the écu had to go: ein ECU, he explained, sounded too much like eine Kuh--in German, that is, the new coin would be too easily confused with a cow. "Ducats" and "florins" were put on the table and rejected. With lunchtime approaching--all this according to an account in the French newspaper Libération--the Spanish prime minister suggested "euro," not for the first time. The assembled heads of government mumbled the word in their various languages. The Greeks reported that "euro" sounded dangerously like the Greek word for "urine." But Greece does not carry the same weight as Germany in such matters. Euro it was.

Around the same time, the Swedes were demanding and getting a change in the composition of the coins. The mint directors had decided on a heavy use of nickel; it is attractive, durable stuff, and French mines in New Caledonia produce a lot of it. The franc is pure nickel, and nickel-alloy coins are common around the world--but not in Sweden. There it is banned, because there handling nickel coins is believed to cause allergic skin reactions. Thanks to the Swedes, the lowest-denomination euro coins will contain no nickel at all. The 1-, 2-, and 5-cent pieces (there are in the euro 100 "cents"--which will most likely be pronounced as local languages dictate) will be copper-plated steel; the 10-, 20-, and 50-cent pieces will be made from a new, yellowish alloy, invented in Finland, called Nordic gold. It is mostly copper, with smidgens of zinc, aluminum, and tin.

Only the 1-euro (worth a bit more than a dollar) and 2-euro pieces will contain nickel, and most of it will be safely sandwiched inside a copper alloy. The sandwiching process was patented by the German company Krupp. On the other hand, the coins will be two-toned--a yellow ring around a nickely center for the 1-euro, the other way round for the 2-euro--and that tricky fabrication process is French. Besides being typically European, the layers of complexity will make the coins harder to counterfeit. "These two coins will be among the most secure in the world," says Constans.

Fear of fraud was one reason the European Commission wanted the coins to look the same in every country--the greater the number of different coins, the harder it is to recognize a phony. Fear of public reaction led the national governments to reject this idea. Each coin will have a European face (tails) and a national face (heads). Beginning in 2002 there will thus be 88 different coins (8 denominations times 11 countries) circulating in Euroland. In the case of euro bills, however, which will be issued by the central bank of each country under the orders of the new European Central Bank in Frankfurt, the Eurocrats' and bankers' concerns carried the day. There will be no national symbols on the bills: they will be identical throughout Euroland.

The idea of decorating them with portraits of great men and women, that staple of banknotes everywhere, was rejected for fear of inciting nationalist sentiment. "The history of the continent being one of almost uninterrupted conflict, it proved difficult to achieve consensus on historical figures," Yves-Thibault de Silguy, the European Commissioner responsible for the euro, explains in a primer on the subject. The central bankers opted instead for architecture through the ages. Each of the seven euro bills illustrates an epoch, from classical through Gothic to modern, with recurring motifs: on the back there is always a bridge (to the future, from one country to another), and on the front there is a window (open onto the world) or an arch (ditto). None of these are real structures--the Pont du Gard, say, or the Brandenburg Gate. They are generic representations of a common European patrimony, all national specificity expunged.

If the euro bills had had national sides, de Silguy adds, the central bankers would have been confronted with a peculiar circulatory problem. Northern Europeans head south to the Mediterranean every summer, taking money with them, but the northward flow of southern Europeans is small. If Finnish bills, say, were different from Spanish ones, they would soon begin to pile up noticeably in Spain. The Spanish central bank would have to sort them out of its own flow and send them back to Helsinki, because only the Finnish bank could decide when to retire a crumpled Paavo Nurmi (the great runner, who is on an existing Finnish bill) and print a new one.

Coins don't wear out so fast, so having national heads on them doesn't pose the same problem. The design scheme for the European tail side is a large number next to a map: Europe on a globe, or broken into its component nations, or unified without borders, depending on the denomination. Nations are free to do as they please with the heads of the coins.

Beginning in 2002, then, coins will become like a chemical dye that traces the ebb and flow of people through Euroland. Here in France you will one day find an electrocuted eagle in your pocket and know that a German tourist has been near. There will surely be a lot of Dutch Queen Beatrixes as well, and maybe even a Juan Carlos or two. Two centuries after guillotining Louis XVI, the French will once again be buying bread with coins that bear the likenesses of sovereigns, and foreign ones at that.

The Paris mint predicts, though, that the huge majority of coins here will remain reassuringly French and Republican--and beautiful. "Our first challenge was to make the coins beautiful," says Constans. "It's very important that the coins be recognized by the public on an artistic level." There will be a new Marianne, the quintessential symbol of the Republic, dressed (like the Semeuse) in a Phrygian bonnet. The new Marianne is meant to look "strong-willed," to show her readiness to build Europe, but she comes off as mannish. The new Semeuse retains the outline of the old, but she is so sketchy as to seem an empty dress.

Between now and the end of 2001 the mint aims to produce 7.6 billion euro coins, 30,000 tons' worth, which will require nearly 2 acres of storage space. It has tripled its production capacity; moneymaking is now one of the most booming sectors of the French economy. By the beginning of 2002, the Bank of France intends to have printed more than 2 billion euro bills. Similar efforts are under way in the other countries: Euroland as a whole will require around 70 billion new coins and 16 billion banknotes. After January 1, 2002, citizens will begin exchanging old currency for new at their local banks. In all, some 140,000 tons of metal will be removed from circulation in Euroland, melted down, and sold on the world market, but not too fast, or else the bottom will drop out.

Commercial banks, naturally, will be affected more than any other business by the changeover to the euro, and like the mints, they have been preparing for years, each with its own Monsieur (or Madame) Euro to direct the project. Monsieur Euro at Credit Agricole, the largest bank in France in terms of assets, is Robert Boursault. An executive vice president at the bank, he is a vital, dark-haired man, handsomely rough-hewn and a bit pugilistic-looking, the way the French like their actors.

When I visited him he had recently returned from the United States, where he had explained to an audience of American financiers how the euro was going to turn their lives upside down: how international commercial transactions would soon be settled in euros as often as in dollars, and how the European stock market would soon become more valuable than the American, as investments slosh around inside Euroland and flood in from all over the world, including from American pension funds. (Investors will like having just one exchange rate to worry about instead of 11.) This task of enlightenment was one that Boursault had clearly relished. Not so long ago, he says, none of his American colleagues took the euro seriously; now they are calling him all the time for advice. "This is an economic bloc that is being created," he says. "It is not just a technical change of currency."

But to build a bloc that will rival the United States in the global marketplace, Boursault and other European bankers must first weather the technical change. On January 1, 1999, the euro will become legal tender in Euroland, and the national currencies will cease fluctuating in value against one another, instead becoming fixed percentages of the euro; it in turn will be fixed at whatever value the ECU has at 2 p.m. on December 31. Capital markets will switch over to euros, and banks will begin talking to one another in that currency. But the actual coins and bills won't be in the hands of the banks' customers until January 1, 2002. "That means for three years we will have to manage two expressions of monetary value," says Boursault. "All at once, we're going to have to reengineer all our software to make it capable of handling two amounts, francs and euros. That's the difficulty."

There are other software potholes on the road to the euro. To get from dollars to francs, for example, requires a multiplication--there are roughly six francs to the dollar. But converting dollars to euros will require a division, because there will be around 1.1 dollars to the euro. The program that now does the dollar-franc conversion at Crédit Agricole, one of the world's leading money changers, cannot divide: it was designed only to multiply. After a few examples like that you begin to understand why Boursault has hundreds of people working to prepare the tens of thousands of software programs that Crédit Agricole uses. Only on the afternoon of December 31, though, will they find out precisely how many francs are in a euro; they will then spend their holiday weekend switching over all the accounts in the bank.

Three years later will come a different crunch. "We have 17 million clients," says Boursault. "We will have to change all the bills in their pockets. And when I say in their pockets, I also mean all the ones they've squirreled away at home, in a can hidden in some corner, because there are a lot of people who do that in France. All those people are going to come to our tellers. Supplying the tellers will be a massive problem--we calculate it will take 800 Brinks truckloads. And those conversions are not going to be round numbers, they're going to require calculations and giving change and so on. What we're dreading is the time each one is going to take."

The bank's automatic tellers, meanwhile, will all have to be visited by technicians on or about January 1, 2002--not before, because until then they must spit out francs, and not much after, or else there will be irate customers. Besides having its software switched to the euro version, each machine will need new cartridges for the euro bills, which aren't the same size as francs. The bill-gripping rollers will have to be adjusted because euros will be printed on heavier paper. By then Crédit Agricole will have to have supplied merchants with new coins. Otherwise cashiers won't be able to make change when the first customer arrives bearing euros.

For merchants everywhere in Euroland, hell begins on January 2, 2002. During the three-year transition, they will have been getting ready, more or less: posting prices in both euros and francs to acclimate the customers, handing out brochures perhaps, holding training sessions for their staff, if they are large enough. Auchan, one of the chains of "hypermarkets" so popular in France--so large that in some of them the staff travel on roller skates--has recently started classes in which it puts its workers through a Monopoly-style board game that rewards euro-savviness.

But the fun stops in 2002, when both the euro and national currencies will circulate side by side. While francs are being withdrawn from circulation, stores will be required to accept both currencies. They will either have to set up separate checkout lines or else invest in cash registers with two drawers and dual calculation capabilities. For my local bakery or newsstand, the euro may be the incentive to invest in a cash register for the first time. At all stores one can expect long lines and frayed nerves.

According to the Maastricht Treaty, this limbo will last no longer than six months: the validity of the national currencies will expire no later than June 30, 2002. (After that, if you find a stash under your mattress, you will still be able to exchange it at an office of the central bank.) The switch is likely to be made much faster than that, however, perhaps in as little as a few weeks. Some large retail chains would like to do it overnight. But they are opposed by another interest group: the vending-machine industry. Pity the owners of vending machines. They face an agonizing question: When is the most profitable time to switch their machines to euros? The question is unanswerable, because no one can predict how fast the euro will "penetrate" into the pockets and daily lives of vending-machine users. Lobbyists for the industry have asked governments to keep providing old coins well into 2002 and to warn citizens to carry both types of metal. They raise the specter of furious consumers unable to get their Cokes or their condoms (a common vending-machine item here), venting their anger on the machine, yes, but ultimately taking it out on the whole process of European unification. According to the European Vending Association, there are 3.2 million vending machines in the European Union and 7 million other machines that accept money, such as parking meters and pay phones. "Ten million coin acceptors cannot be changed in one day," says the association.

Neither can 290 million people.

People with their own equivalents of the Money Bunny--sophisticated world travelers--will see the benefits of the euro immediately. "Imagine if going from New York to Boston you had to change money," says Boursault. "That's our life today in Europe!" But no one here minimizes the magnitude of the adjustment the euro will require, at least as far as mental arithmetic is concerned. "Imagine all of a sudden prices in the United States, instead of being in dollars, are in pesos. You would need time to adapt."

Switching to the euro will be like living in a foreign country, learning a new language. And it will involve a lot more than wrestling with arithmetic. One morning I had coffee with a young sociologist from the University of Paris, Smaïn Laacher, who was one of a group of social scientists assembled by the European Commission to think about the effect the euro was likely to have on people--by which the European Commission meant consumers. But money, Laacher explained, is much more than a means of consumption. "It is an element of social cohesion," he said, "and it is an element of identification--a means by which one identifies with the nation. With the euro, we're passing from one universe to another, and so that system of identification will be perturbed."

Just as nationalism tends to loom larger in people who have little experience of other nations, said Laacher, the bond to a currency is likely to be more important to people who have less experience with changing money, and less experience with money of any kind: poor people. Laacher voted for the euro, but he is very worried that the changeover will be botched--and that the resulting political resistance will favor the rise of extremists. The National Front, the anti-immigrant, antiglobalization, and virulently anti-euro party, has lately been gaining strength in French elections.

There is no historical precedent for the euro, Laacher and others here stress. Europeans enjoyed a common currency under the Roman Empire, and to a lesser extent under Napoleon. But those transnational currencies were in one fundamental way no different from the national ones today. "Currency has always been something that was guaranteed by a military power or political power," says Jacques Birouste, a clinical psychologist at the University of Paris at Nanterre who served on the same EC committee as Laacher. "First the territory was defined, and then power was exerted to regulate the exchange of goods and money. But the euro is not being organized along those historical lines: the currency is being defined first, without knowing what identity it refers to. It's a completely innovative situation--so it's an extreme situation, a situation of risk."

Birouste likens the citizens of Euroland to a group of people he's studied as a psychologist: test pilots. "The analogy is in the risk taking," he says. "We will be forced to leave an identity protected by the nation and throw ourselves into an adventure to find another one." The people grumbling in long bank lines next January; the shoppers in crowded supermarket aisles staring blankly at price stickers, the Brinks truck drivers and vending-machine repairmen working overtime--all of them will be poised, semiconsciously and semivoluntarily, for a great collective leap of faith.

Faith in what? At the European Commission in Brussels, I found someone with an answer, albeit a personal rather than an official one: an economist named Francis Woehrling. Born before the war in a Germanic environment in Alsace, raised as a Frenchman, educated as an economist at Michigan State, Woehrling came back to Europe because he wanted to help build a European currency and a European federation. What Europeans will come to believe in, he says, and take as the wellspring of their new identity, is the euro itself--that and the new European Central Bank, the equivalent of the U.S. Federal Reserve.

The European Central Bank is supposed to be even more independent of political interference than the Fed. When unemployment is high--in France this spring it fell below 12 percent for the first time in years--politicians are sometimes tempted to do something, like pressure central bankers to lower interest rates, in the hopes of encouraging growth and consumption. But in the long run (according to Woehrling and other monetarists) that type of policy merely promotes inflation. Under the Maastricht Treaty, the European Central Bank will have the authority to resist such pressure. Serenely above the fray, it will pursue its prime directive of controlling inflation by presiding over a slow, steady growth in the money supply. It will have the power to do that because Euroland's money supply will be large, large enough not to be jerked around too much by the whimsies of international money markets--and especially not by the actions of the Fed. This strength will benefit European economies, Woehrling argues, but also European psychology.

"In Europe we had the idea that we could fiddle with money, and so we did all kinds of wrong things," he says. "Many people believe that the government can come in and do something about unemployment, and we had central banks that ran around and acted as if they could do something. Now, instead of having these neurotic parents that harm us, we suddenly will have a Daddy who will be very reliable--the European Central Bank. We will identify with this Daddy who is very rational and powerful. So in this sense we are going to grow up. We are no longer going to be a bunch of squabbling people. And then we're going to say, ëWe're proud of having this.'

"Americans have the Constitution and the Declaration of Independence and the frontier and going into the west--that's all part of America. The Federal Reserve was only introduced in this century. So America had 150 years to think about America before the money came. But in Europe we don't have the wagons to go west: we have the money. That will be the visible sign of some kind of ëWe can.'

"So that's what I think the ingredients of this new identity are: ëWe are a highly developed, rational people; we solved complicated problems nobody else did. We will supply the world with a stable money. We can.'"

In early May, when the heads of government were meeting in Brussels to proclaim Euroland, and the ceremony dissolved into a brawl (France against all comers) about who was to head the European Central Bank, news of the event competed for space on French front pages with another story: the thirtieth anniversary of the Paris student uprising. All through May 1998, the newspapers devoted whole pages daily to detailed flashbacks to May 1968. TV screens once again filled with black-and-white footage of students occupying the Sorbonne, tearing up paving stones to build barricades, being beaten up by police, and explaining, in clouds of cigarette smoke, that only the complete overthrow of the capitalist system would satisfy them. It was hard to know what relevance to find in that utopian chaos. Some commentators tried nonetheless. Le Monde argued in an editorial that the revolution of May '98--the euro--was a continuation of May '68, or at least of one strand of it. Not the Marxist strand, of course, but the other one: the one that represented an appeal to the imagination, the one that stood for individual liberty and openness to the world, the one summarized by the slogan, so often repeated in both Mays, "Be realistic: Ask for the impossible."

Seen against the backdrop of European history, which is to say against the backdrop of many centuries of bloody warfare, none bloodier than this one, the European Union is something impossible that is becoming real. The euro is the biggest step yet in that project. Lately it has come to be defended as Europe's only hope in a globalized economy, but that was not the original idea. The original idea was not to repeat World War II. The euro is, among other things, a historic act of idealism, one capable of uniting politicians as diverse as Helmut Kohl and Daniel Cohn-Bendit, the charismatic leader of the May '68 revolt. Now a Green Party member of the European Parliament, Cohn-Bendit is a vocal advocate of the euro; he even coauthored a citizen's handbook. "In 20 or 30 years, when the European identity has taken root," the book says in one passage, "Europeans will have a completely different vision of Europe. War between France and Spain will be as inconceivable as between Bavaria and Prussia . . . or between Brittany and the Loire."

Maybe--but the idea of starting with the money still seems strange. Maybe it will turn out to have been brilliant: maybe the money, which was hard enough to agree on, will be the means of circumventing nationalist reticences and building something even more profoundly new, a European federation. Europeans as test pilots, Europeans as pioneers headed west, in wagons bearing the logo of their central bank-it might be more accurate to picture them as Money Bunnies of a different sort: as laboratory animals in the largest experiment in social psychology ever performed.

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