Dawn of the ecu approaches while the City slumbers
Who should figure on the Euronote? Jacques Delors? Charlemagne?
Sunday 05 February 1995
The political revolution that will be required to put monetary union into place is matched by the financial revolution required to get a single currency accepted and working. Yet Europe's bankers believe that all the preparations could be in place by 1 January 1997 - the first possible opportunity, and only two years away.
It is a massive exercise in logistics. Malcolm Levitt, EU adviser to Barclays Bank, makes the comparison with decimalisation. That took place in 1971, but the project was announced five years earlier and the necessary legislation was prepared in 1967.
It was, as everybody who lived through it remembers, a wrenching experience. Malcolm Levitt notes that "it took Barclays two years to arrange the secure storage and distribution of the 3,500 tonnes of new coin associated with decimalisation." Yet, the basic unit of currency was retained and only three coins were withdrawn or introduced. This would involve replacing every note and coin in as many as 15 countries.
The notes could have a national design on one side and a pan-European design on the other. This might help soften the blow for those concerned about the loss of familiar symbols of sovereignty. But it raises other problems. What language should the European side be printed in? All of them? (There are 12, counting Gaelic).
Then there is the question of who should figure in the European design. Jacques Delors? Charlemagne? Sir Leon Brittan, among others, has suggested that one side should continue to indicate the value in the former national currency. But could you really have a 6.297 ecu note that is also a fiver?
Nor is it necessarily settled what this new unit is to be called. While the rest of Europe speaks of the ecu, Germany prefers to see this solely as an acronym for European Currency Unit and still hankers after "Euromark". Germany has a tendency to get its own way on these things, while Hans Tietmeyer, president of the Bundesbank, has predicted: "We will still be able to pay in deutschmarks in the year 2000."
For the first few months, at least, the question will probably be dodged. There is likely to be a time-gap between the beginning of the third stage of monetary union - when exchange rates are locked, and currencies can no longer float up and down - and the introduction of a single currency. The "Big Bang" - carrying out the whole process at once - is now thought unlikely. In fact, there is likely to be a delay of anything from a few months to a year or more.
Alexander Lamfalussy, president of the European Monetary Institute, has said that it could "last from six months to several years". But this would be costly. Notes and coins would still have to be exchanged, unless either everybody became a whizz at mental arithmetic or shops invested in the types of tills used at airport duty-free shops.
But there are more complex problems of banking and financial systems, although quite a lot has already happened here. You can already be paid in ecus - staff of the European institutions are, and other private sector organisations use it as a unit of account. You can have ecu mortgages, ecu bank accounts, and buy ecu bonds and bills.
"Many observers have not realised the scale of these changes, because there has been no fanfare of announcement - merely unconnected little steps, spread over several years," says Graham Bishop of investment bank Salomon Brothers. European capital markets have reshaped themselves into a common framework of instruments, he says. "They are implicitly preparing for monetary union as they harmonise standards and build electronic bridges between themselves."
To look at the examples of Barclays' Levitt and Salomon's Bishop, one might assume that the City of London is gearing up for the single currency and well aware of the challenges ahead. But those two are notable Euro-enthusiasts: elsewhere in the Square Mile, precious few indeed are thinking and talking about it. "It's just a theoretical issue, it doesn't mean anything," was a more characteristic reply from a banker with a large City house last week.
At the Bank of England, some senior figures are perturbed by Government rhetoric, and worried at the institutions' lack of preparedness. When the Governor Eddie George called for a debate on EMU, it may well have been precisely this concern that motivated him. The City, like most of Britain, risks being caught with its pants down in 1997.
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