According to Monday’s Le Figaro, the French are not much taken with the single European currency, which will be replacing their historic franc in just over four months time. The government has just revealed the embarrassing news that hardly one percent of non-cash payments were made in euros in July. The Ministry of Finance had originally estimated that more than half of all such payments would be made in euros by now, rising to 70 percent by the beginning of November. But no one seems remotely interested in getting to grips early and voluntarily with the changes that are going to become compulsory in just 123 days’ time.
This may merely represent laziness on the part of Frenchmen who consider Jan. 1, 2002 soon enough to really welcome the new European currency in to their lives. It could, however, demonstrate a continuing serious lack of enthusiasm for the euro and all its works, including the currency’s guardian, the European Central Bank. It should not be forgotten that when the French were given a single opportunity to decide on joining the euro, the majority in favor was wafer-thin.
The one area of serious change that the imminent arrival of the euro actually has brought about is in people’s spending. Not only in France but in Italy and in Spain, a spending spree has been under way this year. It has been occasioned by holders of undeclared earnings anxiously spending the money. Their problem is that if, after the end of this year, they take their ill-gotten gains to the bank to be converted into euros, the cash will come within the sight of the taxman.
Thus in France, for instance, though the underlying economic news is poor, there has been a surge in spending on home improvements, buying cars, jewelry, works of art, furniture and other consumer goods, all of course bought for cash. It has also been noted that bureaux de change have been doing better than usual business as Frenchmen exchange bundles of francs for US or Canadian dollars or the British pound.
The unenthusiastic attitude of the French is mirrored in much of euroland. The exceptions are the Benelux countries, Belgium, Holland and Luxembourg, who have long been happy to trade in a variety of currencies and the Irish, whose punt, originally called the Irish pound and linked to sterling, is still an unwelcome reminder of British rule.
No one now doubts that the euro will fly as a real currency, in its own right, at the start of next year. The question is, how high will it get off the ground? Will euroland’s finance ministries really find a way to square eleven economies, some of which are seriously out of kilter with the rest? And no one now speaks of the economic ground rules for euro membership, the tightly controlled public deficits and borrowing, by which many states still cannot abide.
Currency investors around the world well understand the euro’s weaknesses. That is why when it becomes a truly tradable currency next year, they are likely to view it as a target, not an investment. It was not so long ago that one man, George Soros, made a billion dollars speculating against the British pound. Other dealers must be hoping that the European Central Bank can be taken for a similar sum, defending the indefensible euro.
