Though it only turned a full five years old this January 1, the European common currency has blossomed. Now the euro’s aroma is drawing the former captive nations of Eastern Europe – with Slovenia getting the first whiff.
The erstwhile Yugoslavian constituent of Slovenia, nestled between the Mediterranean and the Alps, has emerged from the darkness behind the Iron Curtain at a torrid pace. The speed of its economic reforms put it in league with the Baltic country of Estonia, where I recently witnessed the vibrancy of a free-market economy where Stalin’s statues once stood.
But Estonia’s success has lapped its goals, pushing inflation past the European Monetary Union’s target of 2.6% and precluding that country’s planned adoption of the euro in 2007.
Slovenia succeeded where Estonia and its Baltic brethren in Lithuania and Latvia have failed, demonstrating the precarious balance between growth and price stability desired by the Frankfurt-based European Central Bank.
The switch signals an important psychological milestone for the former Yugoslavia, still largely in political and economic limbo since the fall of communism and the subsequent period of horrific ethnic violence that followed.
Nevertheless, as the ATMs and teller windows of Slovenia’s capital Ljubljana flipped their stock of old Slovenian tolars for the new-fangled euros to ring in 2007, the capital churn may have changed old economic problems for new ones.
Sowing Seeds of Stability
The seed of the euro was planted with the christening of the EU itself. 1992’s Maastricht Treaty on European Union not only superseded the longstanding European Economic Community with the European Union, it set forth the keystone goal of economic contiguity through shared currency.
When Maastricht was signed, the EU had but 12 members. By the time the eastern bloc’s ice was determined to have sufficiently thawed in 2004, that number doubled to 25. This New Year, two more former Warsaw Pact nations acceded to the continental body, as Romania and Bulgaria joined the EU and brought the tally up to 27.
With more and more national markets adjusting to the standard, disparate economies must absorb the shock of integration. More importantly, citizens who hope (often cautiously) that entering the now 13-member eurozone will trigger a trickle-down effect of prosperity brace for the jarring impact of higher prices.
The euro’s foreign popularity is contributing greatly to the strength that the currency enjoys relative to the dollar. The Financial Times reported in late December that in real terms there have been more euro notes than dollars in circulation since October ’06. Iran’s political desire to deal a blow to the greenback factors in, as does the overarching need for foreign exchange traders to hedge geopolitical risk and the ever-present X-factor of dollar-denominated debt.
The strong euro meant that many European shoppers had a heyday this holiday season, coming to New York in droves to buy luxury items at a relative discount. At home, though, their mental calculus is more cynical. Europe’s Hellenic denizens are still in the habit of converting euros back to the deceased Greek drachma – you simply multiply by 340.
The French capital’s Le Parisien published a study recently saying that the price of a basket of thirty oft-purchased items had gone up by 80 percent since the euro’s introduction. The staple bread baguette, for example, rang up an extra 23% while a tube of toothpaste is now 84 percent dearer.
The pleasant perfume of a continental prosperity is eliciting an allergic reaction from some who breathe it, and with 14 countries left to go before every EU member is in the eurozone, plenty more sneezing can be expected.
Just the First Whiff
Younger Europeans are likely to be less wistful about their fallen francs and marks. World citizens of our generation who have come of age with the internet and international internships are happy to avoid exchange commission fees and the nightmare of being stuck on a midnight train with currency you can’t spend.
But even those who have witnessed all the tumult of the past half-century in the Balkans can be optimistic. Slovene news agency STA conveyed the sentiments of one middle-aged woman who said, "This is not the end of the world; we will simply accept the euro just like we have accepted many other things before that."
Trade unionists, on the other hand, are raising a stink about the new euro.
The lag between rising prices and rising wages are a petal to pick even in the United States, but in Slovenia the prospect of skyrocketing food and fuel costs due to the changeover is leading to calls for salaries to be rounded up during the euro conversion process, along with the rounding of prices. As protectionism rears its head throughout the world in reaction to pungent repercussions of globalization, the surrender of national currency autonomy offends the senses of many in manufacturing professions.
One can only hope that once the petals open up, everyone gets a chance to enjoy the potpourri of countries contributing to the eurozone and its new international standing. Otherwise, the stench could be so intolerable it sends everyone running back home.
Regards,
Sam Hopkins
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