Euro Not Spoken Here
Milo Zolak ekes out a living as a cafe owner in the sleepy town of Petrovac, on the rocky Montenegro coast. Like other Montenegrins, he was relieved when his government scrapped the Yugoslav dinar last fall as the official currency and adopted the solid German mark instead. But now he's alarmed to hear that as of January, Germans will be giving up their marks in favor of euro paper notes and coins. "What do you mean, they're going to change the currency?" says Zolak, who barely knows what a euro is.
Western Europe's grand experiment in union will take a dramatic step forward next year, when the 12 members of the euro zone scrap their marks, francs, lire, and pesestas, and adopt euro in their place. But there's a catch. Millions of citizens in 20 countries and territories outside the European Union, from Kosovo to Turkey to French Guyana, either use Western European currencies as their daily scrip or keep them as a highly valued form of savings. These areas are going to have to switch to the euro, too. And no one knows just how ready they are. If they bungle their switchover, enormous local economic disruption could ensue.
The biggest impact will be on holders of German marks, which have long been prized in Eastern Europe and Turkey as the money to hold when inflation is eating away at the local currency. The sums involved are enormous. Deutsche Bundesbank President Ernst Welteke reckons that between 30% and 40% of the 225 billion Deutsche marks in existence circulate abroad, mainly in Turkey, Russia, and Poland.
SCRIP TEASE. Those marks--almost 20 billion in Turkey alone--will soon have to be swapped for euro. The swap will be hard even for the sophisticated countries of Western Europe. But in places such as Montenegro or Kosovo, where relatively few people seem aware that a financial revolution is just five months away, the changeover could degenerate into confusion and panic. "I'm not sure the [United Nations Administration] really knows what's happening, let alone people in the villages," says a banker in Kosovo, where the mark is the most widely used currency.
In theory, of course, there should be no problem getting the new notes and coins in place Jan. 1, since local banks are preparing for the switch. But many East Europeans don't have bank accounts--especially in the countryside, where cash is king. Another headache is that the switch could be hijacked by local criminals, who might flood places like Montenegro with phony euro before the locals know enough to spot forgeries. Another worry is that criminals will use the occasion to launder dirty money.
Right now, the best the monetary authorities can do to forestall chaos is to rush educational programs into place. The Treasury of French Guyana, for example, is handing out T-shirts emblazoned with the slogan "We're changing our money in 2002" written in taki-taki, a local language. The Polish central bank has launched an information campaign to get Poles to change their marks into euro by the end of next year. Says central bank President Leszek Balcerowicz: "Our key concern is to get people to exchange the marks they've got tucked under their mattresses." Germany's Bundesbank plans to start distributing posters in Turkish, Polish, and other East European languages across the region by the end of September. They will highlight the design and security features of the new notes so that people can spot forgeries.
The switchover is still likely to be a mess, though. Monetary authorities in Kosovo, for example, have little idea how many marks are in circulation and so don't know how many euro they'll need. Montenegro hasn't decided whether to adopt the same two-month, fast-track timetable as Germany, or to opt for a more leisurely conversion. And then there is the Turkey issue. Turkish Economics Minister Kermal Dervis says it would make powerful economic and financial sense for its country to adopt the euro within the next five years as its official currency, and ditch the anemic lira. "More than 60% of Turkey's foreign financial transactions are conducted with the EU," he explains, "and adopting the euro would help us impose monetary discipline." If the Turks decide to go with the euro, the sooner the planning starts, the better.
By David Fairlamb in Frankfurt