On January 1, 2002, the euro (€) officially became the national currency for 300
million people in 12 countries – Austria, Belgium, Finland, France, Germany, Greece,
Ireland, Italy, Luxembourg, Portugal, Spain, and the Netherlands. This move consti-
tuted a major change in the region and has resulted in many fundamental changes.
In this case, the broad changes will be discussed, and then some of the specifics of
the process will be explored by focusing on Italy’s transition from the lira to the euro.
The euro was first used by monetary authorities and businesses on January 1, 1999.
On July 1, 2002, euro coins and notes officially replaced the national coins and notes
of the 12 Euroland countries. In recent years, the euro has been associated with deeper
capital markets and increasing demands by shareholders for better corporate gover-
nance. Steps have also been taken to pool economic data and to better coordinate
banking oversight across national boundaries. And the euro has helped drive long
overdue industry consolidations, from telecommunications to airlines. Overall, the
euro has become the world’s second-largest currency in terms of gross domestic
product and has assisted in the recent trend of slow but sure market-opening liberal-
ization in Europe.
The euro has also resulted in positive daily life benefits for European citizens. For
example, when these citizens travel to other euro countries, they can more easily
compare prices, and they will not have to stop at a foreign-exchange window and
hand over a foreign-exchange commission. Consumers are already gaining from their
new ability to compare prices in one currency. In 2001, the website of the French
national railway system started quoting a single, euro-denominated price, instead of
12 different prices; the result was consumer savings of as much as 20 percent. In short,
economic life in Europe has become simpler, and this is generally good for both con-
sumers and businesses.
To help further examine the impact of the currency change, the history of the euro
in one nation, Italy, will be discussed. Like most of its European Union (EU) partners,
Italy opted to phase in the euro gradually over 2 months. The lira, which traces its
origins back to AD 794 and Charlemagne’s libra, ran alongside the new currency from
January 2002 until the end of February 2002, before it was officially decommissioned
on March 1, 2002 (although it is still possible to exchange lira for euros at the Bank
of Italy for another 10 years).
This transition period was not easy for Italy. According to the retailers’ association
Confcommercio, only 37 percent of Italians were aware that checks must be written
in euros as of January 1, 2002, while about 80 percent believed that the lira would
continue to circulate after February 28, 2002. Furthermore, a survey conducted in July
2001 by a public think tank showed that 30 percent of Italians were still not sure what
the euro was, about 43 percent were unaware of the timetable for the changeover,
and only 21 percent knew how much a euro would actually be worth (1,936.27 lira).
Beyond these public knowledge problems, the transition was not free. It is esti-
mated that the total changeover cost approximately 5 trillion lira ($2.3 billion). Much
of this expense fell on the business sector, which carried the overall costs of training
and upgrading equipment, estimated at $934 million. Confcommercio figured that big
retailers spent some 0.3 percent of yearly sales preparing for the euro, while small
shopkeepers ended up investing as much as 2 percent of their revenues.
To combat these problems, the Italian government took some preventive steps.
First, shops and supermarkets were required to offer euro–lira calculators at check-
out points, and special toll-free numbers were created to help customers to report
irregularities. Second, little yellow and blue euro converters were sent to every Italian
home. In the end though, after the anxieties of the first few days of the changeover
had passed, Italians decided that the gadget really was not very useful and became
comfortable with the new currency.
There were also some practical changes that came with the new currency. The
single euro is a coin and the bills are larger than the lira bills. Therefore, the biggest
Christmas present in Italy in 2001 was a euro-sized wallet. Also, vending machines,
which are ubiquitous in Italy, had to be refitted for the euro. This often resulted in
pricing changes. In one humorous example, access to the only public toilet in Voghera,
a small town in northern Italy, now costs almost twice as much as it did before the
changeover. “It is all a question of coins,” the local administrators replied. “It is too
complicated to modify the token dispenser.”
This example also illustrates the single biggest problem Italy has had with the
transition – inflation. Before the euro was implemented, prices for goods could vary
by as much as 50 percent between nations. The transition therefore resulted in price
fluctuations to correct these differences; and it was southern countries such as Italy
in particular, which are poorer than their northern neighbors, that felt the impact of
these fluctuations. Additionally, there was suspicion in Italy, as in other countries, that
prices were raised due to opportunistic rounding during the changeover. With an
official exchange rate fixed at 1,936.27 lira per euro, opportunistic round-number
readjustments were inevitable.
Therefore, the changeover to the euro resulted in inflation, especially for the small
things that people buy every day – food, coffee, and haircuts. Higher-priced items,
such as cars and computers, have held steady or even in some cases declined in price
due to increased competition across the European Union. As the economist Katinka
Barish of the Centre for European Reform noted, “You might have competition on a
Euro-wide basis for cars, but you cannot do that on things like kebabs.” For example,
prices in cafés and restaurants rose 4.3 percent in 2002 – nearly double the general
inflation rate. Importantly, this is the inflation that people notice most, resulting in a
large difference between perceived inflation and actual inflation.
Italian consumers have been particularly indignant about price increases and some
groups have led strikes in which consumers vowed to stop buying things for a day.
One consumer, Jose Elorrieta, a Milan engineer and university professor with two
young daughters, says that the price of the high-end cured ham his family buys for
Christmas nearly doubled in 2002, to 60 euros a kilogram, or about $28 a pound,
compared with 36 euros a kilogram, or $16.80 a pound, at the end of 2001. “It is
the same story with clothes, with shoes – everything has gone up brutally, and it is
almost exclusively due to the introduction of the euro,” complains Mr Elorrieta, who
says he has cut back on holiday spending as a result.
The government has taken steps to combat inflation. The prime minister’s mother
complained that pasta prices had trebled since the euro’s launch and, in response, he
took action. To combat Italy’s fast-rising prices, he called for a 3-month freeze on
electric, gas, and postal prices. Even with these initial hiccups, however, the intro-
duction of the euro should be positive for both Italy and the continent. The move to
a standardized system, cooperation, and more accountability should result in economic
growth for the region. As the examination of Italy’s process shows, the change has
not been completely smooth, but overall it has been positive.
million people in 12 countries – Austria, Belgium, Finland, France, Germany, Greece,
Ireland, Italy, Luxembourg, Portugal, Spain, and the Netherlands. This move consti-
tuted a major change in the region and has resulted in many fundamental changes.
In this case, the broad changes will be discussed, and then some of the specifics of
the process will be explored by focusing on Italy’s transition from the lira to the euro.
The euro was first used by monetary authorities and businesses on January 1, 1999.
On July 1, 2002, euro coins and notes officially replaced the national coins and notes
of the 12 Euroland countries. In recent years, the euro has been associated with deeper
capital markets and increasing demands by shareholders for better corporate gover-
nance. Steps have also been taken to pool economic data and to better coordinate
banking oversight across national boundaries. And the euro has helped drive long
overdue industry consolidations, from telecommunications to airlines. Overall, the
euro has become the world’s second-largest currency in terms of gross domestic
product and has assisted in the recent trend of slow but sure market-opening liberal-
ization in Europe.
The euro has also resulted in positive daily life benefits for European citizens. For
example, when these citizens travel to other euro countries, they can more easily
compare prices, and they will not have to stop at a foreign-exchange window and
hand over a foreign-exchange commission. Consumers are already gaining from their
new ability to compare prices in one currency. In 2001, the website of the French
national railway system started quoting a single, euro-denominated price, instead of
12 different prices; the result was consumer savings of as much as 20 percent. In short,
economic life in Europe has become simpler, and this is generally good for both con-
sumers and businesses.
To help further examine the impact of the currency change, the history of the euro
in one nation, Italy, will be discussed. Like most of its European Union (EU) partners,
Italy opted to phase in the euro gradually over 2 months. The lira, which traces its
origins back to AD 794 and Charlemagne’s libra, ran alongside the new currency from
January 2002 until the end of February 2002, before it was officially decommissioned
on March 1, 2002 (although it is still possible to exchange lira for euros at the Bank
of Italy for another 10 years).
This transition period was not easy for Italy. According to the retailers’ association
Confcommercio, only 37 percent of Italians were aware that checks must be written
in euros as of January 1, 2002, while about 80 percent believed that the lira would
continue to circulate after February 28, 2002. Furthermore, a survey conducted in July
2001 by a public think tank showed that 30 percent of Italians were still not sure what
the euro was, about 43 percent were unaware of the timetable for the changeover,
and only 21 percent knew how much a euro would actually be worth (1,936.27 lira).
Beyond these public knowledge problems, the transition was not free. It is esti-
mated that the total changeover cost approximately 5 trillion lira ($2.3 billion). Much
of this expense fell on the business sector, which carried the overall costs of training
and upgrading equipment, estimated at $934 million. Confcommercio figured that big
retailers spent some 0.3 percent of yearly sales preparing for the euro, while small
shopkeepers ended up investing as much as 2 percent of their revenues.
To combat these problems, the Italian government took some preventive steps.
First, shops and supermarkets were required to offer euro–lira calculators at check-
out points, and special toll-free numbers were created to help customers to report
irregularities. Second, little yellow and blue euro converters were sent to every Italian
home. In the end though, after the anxieties of the first few days of the changeover
had passed, Italians decided that the gadget really was not very useful and became
comfortable with the new currency.
There were also some practical changes that came with the new currency. The
single euro is a coin and the bills are larger than the lira bills. Therefore, the biggest
Christmas present in Italy in 2001 was a euro-sized wallet. Also, vending machines,
which are ubiquitous in Italy, had to be refitted for the euro. This often resulted in
pricing changes. In one humorous example, access to the only public toilet in Voghera,
a small town in northern Italy, now costs almost twice as much as it did before the
changeover. “It is all a question of coins,” the local administrators replied. “It is too
complicated to modify the token dispenser.”
This example also illustrates the single biggest problem Italy has had with the
transition – inflation. Before the euro was implemented, prices for goods could vary
by as much as 50 percent between nations. The transition therefore resulted in price
fluctuations to correct these differences; and it was southern countries such as Italy
in particular, which are poorer than their northern neighbors, that felt the impact of
these fluctuations. Additionally, there was suspicion in Italy, as in other countries, that
prices were raised due to opportunistic rounding during the changeover. With an
official exchange rate fixed at 1,936.27 lira per euro, opportunistic round-number
readjustments were inevitable.
Therefore, the changeover to the euro resulted in inflation, especially for the small
things that people buy every day – food, coffee, and haircuts. Higher-priced items,
such as cars and computers, have held steady or even in some cases declined in price
due to increased competition across the European Union. As the economist Katinka
Barish of the Centre for European Reform noted, “You might have competition on a
Euro-wide basis for cars, but you cannot do that on things like kebabs.” For example,
prices in cafés and restaurants rose 4.3 percent in 2002 – nearly double the general
inflation rate. Importantly, this is the inflation that people notice most, resulting in a
large difference between perceived inflation and actual inflation.
Italian consumers have been particularly indignant about price increases and some
groups have led strikes in which consumers vowed to stop buying things for a day.
One consumer, Jose Elorrieta, a Milan engineer and university professor with two
young daughters, says that the price of the high-end cured ham his family buys for
Christmas nearly doubled in 2002, to 60 euros a kilogram, or about $28 a pound,
compared with 36 euros a kilogram, or $16.80 a pound, at the end of 2001. “It is
the same story with clothes, with shoes – everything has gone up brutally, and it is
almost exclusively due to the introduction of the euro,” complains Mr Elorrieta, who
says he has cut back on holiday spending as a result.
The government has taken steps to combat inflation. The prime minister’s mother
complained that pasta prices had trebled since the euro’s launch and, in response, he
took action. To combat Italy’s fast-rising prices, he called for a 3-month freeze on
electric, gas, and postal prices. Even with these initial hiccups, however, the intro-
duction of the euro should be positive for both Italy and the continent. The move to
a standardized system, cooperation, and more accountability should result in economic
growth for the region. As the examination of Italy’s process shows, the change has
not been completely smooth, but overall it has been positive.
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