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Euro: Time For Change?

By Gary Lee
Washington Post Staff Writer
Sunday, January 3, 1999; Page E01


Euro icon If you're headed for Europe and have seen the reports about the arrival of the euro -- the new currency that 11 European nations began to adopt on New Year's Day -- and are worried that your bank doesn't have any of the new money to exchange and you're getting exasperated because you don't want to get to the Paris airport without cash to pay for a cab to the hotel, I have two words of advice:

Chill out.

Although the euro technically became an official currency across much of the Continent on Jan. 1, it will not be made widely available in cash or coin form for another three years. At this stage, the euro bank notes or coins travelers might see for sale in European tourist shops are only useful as souvenirs or keepsakes. No businesses or individuals will require euros for transactions until, supposedly, 2002.

The 11 European Union countries that will use euros, described colloquially as Euroland, are mandated to replace their old currencies with the new one by Jan. 1, 2002. Until then, vendors will continue accepting Italian lira, Austrian shillings, German marks or other existing monies.

Although travelers are not required to make purchases in euros for another three years, they do so already -- but only with euro-denominated credit cards or travelers checks. In the United States, traveler's checks issued in euros may be obtained from American Express, Thomas Cook or other major issuers. The checks are accepted by most major retailers, but smaller shops and restaurants may not be prepared to handle them yet.

MasterCard, Visa and most other major cards issued by American or European banks will allow users to make credit purchases in euros. The purchase price will be converted by the bank and turn up as a dollar charge on monthly card statements.

Globe-trotters who really want to be on the hip edge can sign up for bank accounts and credit cards tallied solely in euros.

Before rushing to go euro all the way, however, be advised that you will reap no gain, financially or otherwise, from jumping the gun, beyond bragging rights that you have already starting using euros while everyone else is still dealing in pesetas, francs or some other old-fashioned currency.

As of Jan. 1, large Euroland hoteliers and merchants are listing the prices of meals, rooms and goods in euros as well as the local currency (some began doing so last year). Hyatt, Holiday Inn and other major international chains already are quoting room costs in properties worldwide in euros, as well as in other currencies. Restaurant and room bills in major establishments are also appearing with the amount owed listed in euros as well as the currency of the country where the property is located.

Don't be confused by this dual pricing system or think it requires you to cash all your dollars, marks or francs into euros. The biggest reason establishments have begun dual pricing is to get consumers gradually accustomed to the idea that the new monetary unit is coming. The system also allows those who want to use euro traveler's checks or credit cards know how much they are paying.

Travelers destined for England, one of the Washington area's most popular European destinations, can stop reading this article now and continue spending pounds and pence without giving euros a thought. England is one of three countries in the 15-member European Union that have opted out of participating in the transfer to the euro, at least for now; Sweden and Denmark are the other two. Greece would like to take part but has not yet met the economic criteria. Switzerland is not part of the European Union and therefore not eligible for participation.

The countries adopting the euro are Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.

For travelers who like to plan far ahead, the year to start panicking about the conversion to the euro is 2002. At the beginning of that year, participating countries are charged with phasing out their own cash and coins and introducing euros. Some countries may begin circulating euros before then, but by June 30, 2002, Euroland is supposed to have completed the process and fully withdrawn the old currencies. For a few weeks in 2002, euros and local currencies may circulate alongside one another, making for a bit of confusion.

Once the circulation of euros is complete, the uniform currency should make European travel a bit easier. Above all, it will save the cost and hassle of changing money in and out of Italian lira, Dutch guilders and other sundry currencies. With the costs of commissions, reconverting unused money into dollars and other related charges, money exchange can account for up to 3 percent of travel costs in foreign countries, specialists from American Express estimate.

With euros, the transactions will be fewer and simpler. As a consequence, the number of currency exchange places in European cities is likely to decrease dramatically.

Ella Krucoff, head of press in the Washington office of the European Union, advises travelers who have saved French francs, German marks or other currencies now used by countries switching to the euro to start spending them all now. Once the euro starts circulating, it may be hard to cash in the old money, she said.

Krucoff pointed out that one big boon of the euro will be comparative shopping. Under the old system, the same pair of boots may cost 400 French francs in Paris, 140 marks in Munich or 2,000 Belgian francs in Brussels. It takes a calculator and some careful analysis to determine which is the better bargain. With everything listed in euros, weighing the price of the same item in different countries will be a cinch. Determining the relative price of hotel rooms in Amsterdam, Lisbon and Brugge will be much simpler, for example.

Euros should be easy to handle. There will be seven euro-denominated notes (5, 10, 20, 50, 100, 200 and 500 euros) and eight coins (1, 2, 5, 10, 20 and 50 euro cents and 1 and 2 euros). The notes will be uniform throughout Euroland. The coins will have the same euro symbol on one side. Each country may put its own emblem on the flip side of the coins.

With a single currency used across much of the Continent, exchange-rate fluctuations also will be easier to track. Like the currencies it is replacing, the euro will float alongside the dollar. The ecu, the forerunner to the euro, is currently exchanging for 1.117 euros to the dollar. However, there is no reason to expect the rate to remain so close to the U.S. currency, explained Krucoff. "Where the euro-dollar exchange rate will go is impossible to predict at this stage," she said.

How the euro will affect the prices travelers pay for goods and services is hard to determine as well. The single currency should encourage vendors across the Continent to make their prices more uniform, according to Francois Charriere, a partner with Andersen Consulting in Paris.

The effect of this system of pricing using the same currency across borders, known as transparency, will probably be to drive prices toward the floor rather than the ceiling, he added. A pair of designer sunglasses that cost the equivalent of $90 (U.S.) in Paris and $60 (U.S.) in Lisbon are likely to be closer to $60 than $90 as a result of the enhanced competition brought about by the introduction of euros, he explained. The prices of package tours, which are now offered at wildly different rates in different parts of Europe, are likely to become more uniform and cheaper, he added.

"The customer is empowered to compare and question," said Gebhard Rainier, director of finance for Hyatt International Hotels. "He will want to know why a cola in Spain may cost one euro, while in Germany it may cost three."

Other analysts have argued that the new euro zone, which will have a total of 300 million citizens and will be roughly the same size as the United States, will have greater bargaining power against the dollar and thus will likely inch the costs of goods and services gradually upward.

© Copyright 1999 The Washington Post Company

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