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The euro will also be
used in West Africa, South America, the Pacific, and Eastern
Europe
Who's in the Twilight
Zone?
Faisal
Islam, The
Observer (liberal), London, England, Oct. 18, 2001
Despite having
declined to sign up, Britain features on the map of Europe that
adorns the euro banknotes; so do Switzerland, Denmark, Serbia,
and Russia. Perhaps the map signals a statement of expansionist
intent.
But the biggest mystery lies in the four speckled boxes at the
bottom of the note's hi-tech iridescent stripe.
The large one contains a representation of French Guyana. The
three smallest boxes contain seemingly meaningless dots representing
the farthest reaches of the eurozone: the Caribbean islands
of Guadeloupe and Martinique, and the Indian Ocean island of
La Réunion.
In fact, thanks to a three-hour time difference, La Réunion
will be the first territory to use the euro on Jan. 1, 2002.
One Banque de la Réunion official tells of the CFA (African)
francs dug from gardens and brought in still smelling of earth
for conversion to the French franc 25 years ago.
The experience is likely to be repeated across the world in
the French départments where the franc is legal tender. The
Banque de France is responsible for the logistical challenge
of preparing these far-flung parts of the French empire for
the euro switchover. It has printed one explanatory brochure
in Taki-Taki, the local language of 20,000 people in the far
reaches of French Guyana. Similarly the Banco de Espana will
bring the euro to the Spanish enclaves of Ceuta and Melilla
in northern Africa.
“These are territories of the European Union,” said
a spokesman for the European Central Bank. “I'm not even
sure the logistics are more complicated: There are thousands
of islands in Greece. These places are just further away.”
But the economic implications of the euro are being felt even
beyond the distant Dom-Tom and French overseas departments and
territories.
Seventy million citizens in Francophone countries of Africa
already have their interest rates set by the ECB in Frankfurt.
There is no prospect of the euro circulating as legal tender
in the zone's 14 countries—Benin, Burkina Faso, Ivory Coast,
Guinea Bissau, Mali, Niger, Senegal, Togo, Congo, Cameroun,
Gabon, Equatorial Guinea, the CAR, Chad, and the Comoros. But
linking the CFA franc zone to the eurozone did cause some discomfort
in the EU.
“The CFA franc was tied to the French franc [1 Ffr to 100
CFA francs], and this has been translated to a peg to the euro.
The real peculiarity of the CFA zones is that there is a French
Treasury guarantee on the peg,” says Charles Wyplosz, a
leading monetary economist at the Center for Economic Policy
Research.
The French government undertakes to provide euros to the central
banks of these African nations should there be a speculative
attack. But it is the French Treasury and taxpayers who have
made the promise, rather than the Banque de France, which keeps
the system consistent with EU law. The German government had
worried that huge bail-out costs could destabilise the entire
eurozone. Wyplosz says: “This undertaking may look enormous,
but the amounts involved are peanuts.”
Supporters of the peg say the CFA zone is the only part of Africa
without serious inflation, but critics note that the economic
performance of the zone has been bad, particularly during periods
of franc overvaluation.
Logistics are a little bit more complicated away from the vestiges
of the European empires. In eastern Europe, many local currencies
are pegged to the deutschmark, or it is widely used as a parallel
currency. The Bundesbank estimates that between 30 and 40 percent
of German banknotes—worth €50 billion—are held abroad.
A quarter of these are in Turkey. The mark is an unofficial
second currency throughout the Balkans, and legal tender in
Kosovo and Montenegro, where formal changeover programs are
proceeding. The Bundesbank and ECB are running an information
program in 16 other countries that border the eurozone. Leaflets
and posters have been printed in 23 languages, including Russian,
Serbo-Croat, Albanian and Turkish. Each features the slogan:
“The euro is coming. The deutschmark is going, the value
is here to stay.”
Commerzbank, the leading German financial institution, feared
that the euro might slump in value if uncertainty in mark-using
economies caused a rush to the dollar or Swiss franc.
The ECB has allowed the advance distribution of euro notes to
foreign banks without charging interest and has held training
sessions for teams from countries outside the eurozone.
And what of the 12 accession countries—those whose applications
to join the EU have been provisionally approved? Bulgaria, Cyprus,
the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta,
Poland, Romania, the Slovak Republic and Slovenia will have
no opt-out from the single currency if their membership of the
EU is ratified. Neither would they want one. But some, such
as Estonia and Bulgaria, have openly discussed unilateral "euroization"—effectively
sidestepping the convergence requirements and fiscal retrenchment
required by the European Commission.
Estonia operates a currency that is effectively a mark—and
now a euro. It has no independent monetary policy, but this
is still short of full euroization.
“Their best step would be to adopt the euro unilaterally,”
says Wyplosz, "But EC rules prevent it, which I find preposterous.”
The ECB has fired a shot across the bows of those countries
considering unilateral adoption of the euro. Only last week
it completed its own survey of monetary and financial institutions
in the accession countries. The Frankfurt-based bank is keen
to protect the primacy of the strict convergence processes.
So Estonia may have to abandon its currency board before meeting
the criteria for EU entry, and then enter ERM II (the successor
to the original Exchange Rate Mechanism) for two years.
“Euroization would sidestep the Commission's initiation
rights, but a reasonable way [for the Commission] to respond
is that if you unilaterally euroize, you do so at your own risk,”
Wyplosz says.
All the accession countries will benefit from stable exchange
rates, but they are very different from the rest of the union.
Says Wyplosz: "They're fast growing and naturally tend
to have more inflation, which is going to make it hard to meet
convergence criteria. In a way they will resemble the CFA zone
—once they are in the monetary union, they lose monetary
policy and have to accept shocks on growth." In other words,
they will not have the flexibility to prevent any overvaluation
of the euro slowing down their economies.
Euroization, like the dollarization process in South and Central
America, is likely to prove controversial. But the broader process
will create a bloc of over 40 countries stretching from the
Comoros to the Baltic. Not all of them will feature on the banknotes.
But they will all have a vested interest in Frankfurt's decision-making.
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