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Europeans ponder impending leap into the euro zone For some, the switch is a dreaded headache; others see opportunity

THE BALTIMORE SUN

BERLIN -- Ute Karpinske is a self-taught currency expert. The 58-year-old owner of the Zum Nussbaum pub has lived through cash minted by Hitler's Reich, Communist East Germany and a united Germany.

She recalls when American dollars and West German marks were like gold nuggets to those who lived behind the Berlin Wall. And she was raised on tales of the 1920s, when inflation in Germany was so rampant, people paid a barrel full of cash for a loaf of bread.

So, when it comes to the impending launch of a single currency for Europe, in a revolutionary bid to remake the continent's economic face, Karpinske counts herself among the skeptics.

"Why do we need it?" she says. "Nobody asked us if we wanted it. But we're going to get it anyway."

Throughout Germany, and much of Western Europe, people such as Karpinske are pondering what it will mean to soon live together under a new currency called the euro, the cash that is due to cross national boundaries, languages and cultures from the Mediterranean to the Arctic Circle.

Nations that have fought wars against one another are using currency to bind into a colossus of nearly 300 million people in a combined $6.2 trillion economy, second only to the United States.

This weekend at a meeting in Brussels, Belgium, 11 countries -- ** led by Germany and France -- are expected to sign up as founding members of the euro, setting the terms on trading their marks, francs, pesetas and lire for the new cash. Others to grasp the euro include Austria, Belgium, Finland, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.

Britain, Denmark and Sweden are holdouts -- content to keep their cash while monitoring the project. Greece didn't meet the initial financial requirements to cut inflation and government deficits to get in the first euro class.

Banks and financial markets will begin phasing in the new currency Jan. 1, 1999. The actual new euro bank notes and coins will be introduced Jan. 1, 2002, with national currencies ditched six months later. A powerful central bank, based in Frankfurt, Germany, will oversee monetary policy.

The project comes nearly 50 years after European leaders first dreamed of forging closer economic ties to discourage conflicts like the two world wars that ravaged the continent in this century. Yet the euro is still a great leap into the unknown. Europe's leaders are giving up the authority to print and control their currencies. In exchange, they are combining forces in a daring plan to create wealth and keep the peace.

"The euro changes everything," says Malcolm Levitt, a chief adviser on the issue for Barclay's Bank in London. "Will it fly? Yes. How long will it stay in the air? The countries are determined to make it work."

At its most basic, the euro is viewed as a vehicle to more cheaply and efficiently move goods, services and cash throughout "Euroland." But the euro represents more than cash. Some see the currency as a forerunner for a united states of Europe, with the nation-states moving to a federal-style government in the coming decades. Others claim the project could fall apart over inevitable political tensions. The euro notes haven't even rolled off the presses, and Germany and France have battled over rival candidates for the top central bank post.

'People didn't use them'

Yet for a small-business owner such as Karpinske in eastern Berlin, the euro is something of a dreaded headache. She has already handled the cash during an experimental euro program that shopkeepers along Berlin's Propst Street participated in last year. Consumers were urged to trade in their marks for euros and buy specially priced products.

"It didn't work," Karpinske says. "People didn't use them."

Even though the euro won't be jingling in people's pockets for a few years yet, the red-haired, red-faced Karpinske is already counting the costs to her business, a smoky, paneled pub -- reputedly Berlin's oldest and located on a cobblestone square in what was once the Communist east.

Karpinske will need a new cash register, perhaps as early as January, in an effort to give prices for beer and schnapps in euros and marks. She'll print new menus with new prices for a delectable array of sausage dishes. She'll seek to convince the eight people who work for her that their salaries haven't decreased when the euro replaces the mark.

"I don't see any advantage in this," Karpinske says. "None at all. Well, maybe one. When people go abroad, they won't have to exchange their money. But I don't travel much."

While Karpinske sees only problems with the euro, another nearby shopkeeper sees opportunities. Ines Faenger sells Belgian chocolate and other goodies in her tea shop.

"Whenever I cash a check now for Belgian francs, I have to pay the bank a commission," she says. "With the euro, I won't have to pay that commission any longer. I'll just cash the check in euros."

Yet even Faenger admits she has mixed feelings about giving up her marks for the untested euros.

"Nobody here really knows how it will start or how well it will work," she says.

The problems that the shopkeepers face with the euro are small compared with the logistical challenges that must still be overcome by governments and multinational businesses that will spend billions on the conversion.

"Everything that has to do with cash has to change," says Victor Bruns, who heads one of the euro project teams for Deutsche Bank, Germany's largest bank.

New currency will be minted and old coins will be melted. In Germany alone, 100 trainloads will be needed to haul away more than 80,000 tons of coins.

Computers will be retooled, software will be created and automated teller machines will be changed. Mortgages, insurance policies, retirement funds, savings accounts, and stock and bond prices will be recalculated for the euro. Even 3.5 million coin-operated vending machines will have to be adapted for the new coins.

The big multinational companies may reap the greatest benefits at first. Daimler-Benz, the giant automaker, is spending more than $120 million to retool its computers but will realize annual savings of more than $60 million, since currency-exchange charges will be eliminated in the euro zone.

A break for consumers

Europe's hard-pressed consumers also may get a break. For the first time, they'll be able to buy goods and services in one currency instead of nearly a dozen. That might force vendors to charge the same price eurowide on products as varied as Big Macs and Fiats.

But that transparency cuts both ways. The euro will highlight labor and social spending costs, historically high in the north and low in the south. And competition will be fierce as firms fight Euroland-wide for market share.

If successful, the euro might become the world's No. 2 reserve currency and even challenge the U.S. dollar for global supremacy. If the demand for dollars falls, U.S. interest rates could be pushed up. U.S. businesses will also have to adapt, selling their goods in one currency, while catering to local tastes in what remains a diverse marketplace.

"For American tourists in Europe, life will be a lot easier," says Levitt of Barclay's Bank. "A euro will be almost exactly equivalent to the dollar, and you'll only have to trade for it once."

Polls show Italians, Portuguese and Spaniards view the euro favorably, especially when compared with their often hard-pressed currencies. Yet many northern Europeans are loath give up their cash.

Anti-euro sentiment is running especially high in Germany, where two out of three people oppose the project. Four economists launched an unsuccessful court fight to block Germany from immediately joining the euro.

Europe's diverse economies, heavily regulated labor markets and expensive social programs needed to be reformed before the currency was introduced, according to one of the economists, Wilhelm Hankel of the University of Frankfurt. He says in the near term, the euro threatens to drive down wages, raise unemployment and disrupt Europe's cradle-to-grave welfare states.

"If you would had had enough time to solve the problem of all the labor markets, then the euro would be a wonderful instrument for Europe," Hankel says. "But if you start too fast, you create a revolution."

Not 'an incalculable risk'

But to German Chancellor Helmut Kohl, the euro symbolizes his country's commitment to live peacefully with its European neighbors.

"This euro is in no shape or form an incalculable risk," Kohl said last week as Germany's Parliament approved the launch. "I am certain that in just a few years' time the euro will be accepted as readily as the deutsche mark is now."

Polls show most Germans disagree. They are fearful of record unemployment and of losing the deutsche mark, the symbol of the country's postwar climb to respectability and economic dominance.

"The people are uncertain and don't know what the euro is all about," says Gerd Wartenberg, undersecretary for European affairs in Berlin's Senate. "It's a typical reform from the top. No one in the population of Europe would have made a revolution for a single currency. There is no demand for this from the population."

So the selling of the euro has gathered pace in Germany. There are telephone hot lines, euro weeks and other programs under way to educate Germans on the purported benefits of the new currency. At the European Information Center, Claudia Laubenstein lectures high school students on the ins and outs of the euro.

"The students ask, 'What are the advantages for me? When will I have the bills in my hand?' " Laubenstein says.

After sitting through a two-hour lecture, 17-year-olds Philip Marx and Sonja Kobinger come away with differing views on the euro.

"I think there is a danger that small shops will raise their prices," Marx says, voicing a commonly held fear that businesses will pack price increases into the exchange from national currencies to the euro.

Kobinger disagrees. She is confident that the euro project will proceed smoothly. Yet she worries that older Germans, particularly those from the east, will have a difficult time accepting the new cash.

"There is a lot of misunderstanding among the elderly," she says. "The euro is nothing but a recalculation of currency. There will be advantages for everyone. But I think it will be our children who will handle this with far greater ease than anyone else."

Pub Date: 5/01/98

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