Union's Euro good for trade, travelers and U.S.

January 25, 2002

By Marcie Young
Statesman International Editor

When it comes to currency diversity, 12 countries in Europe will never be the same. No more are the days of the Lire, Guilder and Franc.

By Feb. 28 of this year, use of such currencies will be extinct in the European Union. The EU is the institutional framework to unite Europe. Like the federal government in the United States, the EU creates unified policy to apply toward the countries contained in the union.

Just like Utah and New York operate under the same federal regulations, Germany and Italy operate under policies created by the Brussels-based EU. One of the biggest policies implemented by the union came with the crossover from 2001 to 2002.

Beginning on Jan. 1, the Economic and Monetary Union of the EU made the change to one standard currency — the Euro. Although some nations, such as Great Britain, Denmark, Norway and Sweden are members of the EU, officials from these respective countries decided to forgo the switch to the Euro from a national currency, according to the EU's Web page at www.eurunion.org.

Countries who did see the change earlier this month include Ireland, Portugal, Spain, France, the Netherlands, Belgium, Germany, Austria, Italy, Finland, Luxembourg and Greece. This list of nations represents a large chunk of Western Europe that has been using one currency, rather than a dozen different forms.

The influence of the Euro, however, goes far beyond having the same bills and coins. Basudeb Biswas, professor of economics at Utah State University, said many pros and cons come with the conversion. Exchange rates, he said, are constantly changing from highs to lows across Europe.

The implementation of the Euro creates a more stable currency for the EU as a whole, rather than the separation caused by 12 currencies. The influence of the Euro across the EU is not unlike the dollar's influence in the United States, Biswas said.

Using Alan Greenspan's recent federal policy to reduce interest rates across this country as an example, Biswas said the EU and the United States now function similarly. Just as interest rates in the United States affect each state the same way, each of the nations in the EU follow the guidelines established for all the members of the union.

But this is a problem, Biswas said.

"One country may need a higher interest rate and another a lower interest rate to stimulate the economy," he said.

He also highlighted the concept of one central bank, located in the EU's headquarters of Belgium, as a potential problem. If one country were to go into a depression, he said, it would need stimulus from the central bank. But having one currency and one central bank may be appropriate for one country but not for another, he said.

Germany, Biswas used as a hypothetical example, could be in a depression stage, whereas France's economy could be booming. If this were to happen, he said, Germany would ease its money supply and France would tighten its supply.

In the past this type of monetary control would normally happen within the individual nation, he said, but the creation of the central bank would force each of the nations to look beyond the national boarders. Most of Western Europe using the same currency, however, makes for easier internal trade, Biswas said.

"The value of trade among these countries is increasing," he said.

Ronda Callister, assistant professor of management and human resources at USU, agreed. She said business transactions between the United States and the EU will become easier. Callister, who has talked with her classes about the EU's conversion to the Euro, said a U.S.-based company working with more than one EU nation will no longer have to worry about converting more than one currency.

Using a European manufactured Ford as an example in her classes, Callister said the switch-over is more economically effective. The Ford Escort produced in the EU has pieces from the Netherlands, France and Austria, to name a few. Because the car is assembled in Germany and sold all over the EU, there is almost no transition cost because all of the countries use the Euro, she said.

Biswas said the Euro creates a more stable trading environment among EU nations causing internal trade to go up. When this happens, the United States will also have to be more productive to compete with trade in the EU, he said.

The Euro, Biswas said, will not just affect the EU, but the world, because competition creates a better economy.

The Euro, however, isn't only good for businesses and the economics, Callister said.

"It's beneficial for both business and for retail consumers who travel between countries," Callister said.

Travelers, who typically hit more than one European country when they come abroad, will only have to worry about changing their own currency to the standard Euro, Callister said.

"It makes it a seamless effort from country to country," she said. Although the Euro originally started out a little higher than the U.S. dollar when it was created in January 1999, it has changed with the economy.

Now, the Euro is worth about 88 cents, but Callister said with economic fluctuations, its value could surpass the dollar, depending on each union's economic strength.




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