INTERNATIONAL

Countdown for the Euro

-Holger Steltzner, Germany

Preparations for the euro are in full swing, and the days of the Mark are numbered. On January 1, 2002, the euro will become legal tender in the 12 member states of the euro-zone. Countries outside the euro zone will also have to adjust.

Some 2000 years have passed since a common currency was accepted from the Mediterranean to northern Europe. In the Roman Empire, the same coins could be used to pay for goods and services throughout much of Europe. The exchange of wares and cultures between highly diverse peoples flourished during the imperial age. After the fall of Rome, the idea of a united Europe was rekindled in the 19th century under Charlmagne in France-and with him came the "Charlmagne pound", which became the currency of almost the whole of Europe for 400 years. In our own time, the dream of a united Europe was born among the ruins left by two world wars.

June 21, 1948 was a very special Monday. It was the day after the currency reform, the day that saw the birth of the deutschmark and a new economic system, even a new Germany. The date also marked the end of the depression of the immediate postwar period and the beginning of Germany's economic miracle. The previous Friday, the people had had to wait in the lines among the ruins to obtain their daily bread. The Monday, however, all the shop windows were full. Mouth-watering food items that many people had not seen in years were suddenly readily available in exchange for the new deustchmark.

Fifty years later, another Monday-January 4, 1999, saw yet another change of currency. This was the day of the euro's launch and the day it became legal tender. Nonetheless, this Monday turned out to be rather unspectacular. Although it represented the beginning of European monetary union, nothing very much changed in people's everyday lives. The euro was still no more than an accounting unit-people were only forced to deal with the new currency when they studied share prices in the newspapers or checked the details of their securities accounts. The day was also rather undramatic because the old exchange rates were not changed by the launch of the euro.

Yet again on a Monday, on December 31, 2001, it will be time to bid farewell to the national currency. For, from January 1, 2002 onwards, people will finally be able to use the euro to pay for goods in the shops. During the first few weeks of the next year, people will have to find room in their wallets and purses for their familiar national bank notes alongside their new euro bills. The changeover process is intended to be largely complete by the end of February. By then at the latest, the euro will have become a concrete and tangible currency for everyone in the euro-zone. The old deutschmark , lira and franc bank-notes will not lose their value, and people will still be able to exchange them for euros in banks at any time, but they will no longer be accepted in shops.

Europe will come into existence by its money: "L'Europe se fera par la monnaie ou ne se fera pas" ( Europe will come into existence by its money or not at all). Jacques Rueff, the French monetary policy expert, formulated the goal and the path to European Union in 1950. In the same year, with the foundation of the European Payments Union, Europe set-off down the long path to the euro. Europeans launched varied initiatives and diverse institutions to create a common currency, culminating on the Treaty on European Union, which the heads of state and the government of the member countries signed in the small Dutch town of Masstricht on December 10, 1991. The European Community, EC, became the EU, the European Currency Unit, ECU-the euro.

When the third stage of the monetary union began on January 1, 1999, the old exchange rates between the participating currencies were replaced by fixed conversion rates. The European Central Bank, ECB, became responsible for all monetary and currency policy decisions within the community. After euro bank notes start being issued on January 1, 2002 and the old national notes and the coins have been replaced, the process of monetary union will be complete. The ECB oversees the national value of the euro. It is organized in the same lines as the German Bundesbank and pursues a monetary policy similar to the highly successful guardian of the deutschmark. The Bundesbank's internationally acclaimed success in combating inflation and the mark's rise as the world's second most important currency after the dollar played no small part in the decision to locate the ECB in Frankfurt am Main. Because of its clear statutes, which have constitutional status, it is considered the world's most independent central bank.

Neither the ECBs successful maintenance of price stability within the euro area nor its independence have been able to hinder the euro's weakness on international currency markets. Since its introduction, the euro has lost approximately 25% of its value against all other major currencies. Yet the ECB can hardly be made responsible for this. The euro's descent is due to the weakness of the monetary union's major economies, which have not shown enough determination in pushing through the structural changes required to answer the challenges of a globalized world economy. On international finance markets, however, euro has taken over the role previously held by the deutschmark. It has become the world's second most important reserve currency, moving Europe's stock exchanges much closer to the leading global finance market in America.

The introduction of the euro, the largest currency conversion programs in history, is an organizational and logistical task of Herculean dimensions. The process of printing euro bank notes is now in full swing in the member countries. A total of 14.5 billion notes with a value of 640 billion euros have to be printed and 50 billion coins minted. Placed end to end, these euro bank notes would create a paper chain long enough to be stretched to the moon and back four times. In Germany alone, 2.5 billion notes with more than 150 million euros will have to be distributed. They will also be joined by 15.5 billion coins worth 4.8 billion euros and weighing more than 70,000 metric tons. Simultaneously, the old national bank notes and coins will also have to be taken out of circulation.

The lives of practically all the approximately 300 million citizens of the euro zones will be affected in some way by the changeover. In future, every one will have to think in euros and cents instead of marks and pfenings. The, most difficult thing probably be getting used to the new prices. Retailers will have to reprice all items and handle two currencies for a transitional period. Businesses will have to convert their accounting systems, price list and payrolls, public authorities will have to print new forms and insurance companies and landlords will have to modify their contracts. On January 1, 2002, all deposits at banks and saving banks will be automatically converted to euros. This will be done by converting all amounts on the basis of the fixed exchange rates-1 euro is worth 1.95583 marks.

The changeover will be interesting particularly in the retail sector. Today, in German food trade, 77% of all items are sold at only ten prices between 0.99 and 5.99 marks. In order to return to these threshold prices ending with a 9, companies will have to adjust their deutschmark prices accordingly before the changeover. Although trade and industry have promised not to use the introduction of the euro to raise their charges, there is no guarantee that prices will not increase. However, because Germany is a high price country in comparison to its European neighbors and the euro will create price transparency, competition will put downward pressure on prices, at least in border regions.

On December 17, 2001, every one will be able to gain their own first impressions of the euro. From that date, all banks will be offering what is known as a Euro Starter Kit. This household set of euro coins will cost 20 marks and contain 20 coins between 1 cent and 2 euros in value-all wrapped in plastic and embossed with the federal eagle. This immediately answers questions about the largest currency unit. The 2-euro coin is the end of the line. The seven euro bank notes, (5, 10, 20, 50, 100, 200, 500 euros) are identical in all member countries, unlike the new coins, whose backs bear different designs selected by the member states. Even before the new bank notes have been issued, some are already describing the euro as a currency without character. This is because euro notes are not decorated with familiar portraits of great European artists and thinkers, but with nameless fragments of bridges and buildings. The designers of bank notes could not have demonstrated more clearly that the euro does not belong to a single country and does not have a past or any roots. The new currency is defined purely by itself, by its monetary value.

The author writes on financial matters for the Frankfurter Allgemeine Zeitung. Text courtesy: Deutschland Number E4 3/2001/July. Embassy of Germany, Kathmandu.

Good governance is the third pillar of ADBs poverty reduction strategy

-Tadao Chino, President, ADB, Manila

The year 2000 saw a further consolidation of Asia's recovery from the financial crisis of 1997. The five countries most affected by the crisis achieved an average growth rate of nearly 7% in 2000, the best aggregate performance since 1997. Together with solid economic growth in less affected countries, developing Asia as a whole continued to be the fastest growing region in the world.

Although Asian economies will continue to grow in 2001 and 2002, such growth is expected to be slower than in 2000. For many countries, the slowdown reflects heightened external risks, primarily the faster than expected slowdown of the global economy, and a deceleration in the technology and electronics sectors since the second half of 2000. We believe that downside risks are manageable, and fears of a new regional crisis seem exaggerated. Drawing upon the severe lessons of the Asian financial crisis, Asian economies have become much more resilient to external shocks compared to the pre-crisis period, with more flexible exchange rate systems, increased foreign exchange reserves, reduced short term external debt, and a demonstrated commitment to ongoing reforms. However, the achievement of sustained growth will require further progress in macroeconomic management and implementing structural and policy reforms, including financial and corporate restructuring, fiscal consolidation, and improved governance. ADB will work closely with its Developing Member Countries or DMCs to accelerate and complete the much needed reform process.

Let me briefly outline our accomplishments since ADBs last annual meeting in Chiang Mai. First and foremost, we initiated implementation of our Poverty Reduction Strategy with its three conceptual pillars of pro-poor, sustainable economic growth; social development; and good governance. Working in full consultation with governments, other donor agencies, and a wide range of stakeholders, we have started country specific Poverty Analyses, and deepened our understanding of the causes and manifestations of poverty in each and every one of our DMCs. Such Poverty Analyses provide the basis for discussions at a High Level Forum in each country that lead to Country Strategies and Programs, as well as Partnership Agreements for Poverty Reduction. These Partnership Agreements represent a concerted commitment to attain specific poverty reduction targets, and identify assistance levels and operational priorities. Partnership Agreements have been signed with B'desh, Indonesia and Mongolia, and will be signed with many other DMCs this year.

Second we started implementation of the Private Sector Development Strategy. The Asian experience has demonstrated that a dynamic private sector is critical to achieving pro-poor, sustainable economic growth, the first pillar of our Poverty Reduction Strategy. Under the Private Sector Development Strategy, we help to put in place and enabling policy and institutional environment. We aim to catalyze the private sector investments, and we use our public sector operations to increase opportunities for the private sector. In addition, to facilitate even greater private sector involvement in the development process, our Board of Directors approved policies on partial credit guarantees and political risk guarantees that expand the range of ADBs credit enhancement instruments.

Third, we are now finalizing our Social Strategic Framework following an extensive consultation process involving governments, international development agencies, NGOs and civil society. Social protection, as an integral part of social development, the second pillar of our Poverty Reduction Strategy, emphasizes investing in human capital, particularly women in development, increasing productivity, and reducing human vulnerability to risks, as a means of addressing poverty and enhancing the quality of economic growth.

Fourth, ADBs Medium Term Agenda and Action plan for Promoting Good Governance was adopted early this year. Good governance is the third pillar of ADBs Poverty Reduction Strategy, and the action plan details a wide range of activities and initiatives to be taken in the medium term.

Fifth, we have been implementing our Resident Mission Policy, which was approved by our Board of Directors in early 2000, to maximize the efficiency and impact of ADBs operations in our DMCs. New resident missions have already been established in China, Mongolia and Laos. We also a Country Office in the Philippines earlier this year.

Sixth, we recently established an NGO Center within ADB to serve as the focal point for further strengthening ADBs interaction and communication with NGOs and civil society in general. ADBs NGO center has already started to forge strategic alliances with international and regional NGOs.

Seventh, in our efforts to assist East Timor, ADB played a key role in establishing a Special Trust Fund for East Timor, together with the World Bank.

Eighth, ADB recently formulated a Pacific Strategy for the New Millennium. ADB has always responded to the needs of smaller countries such as those in the pacific region. Pacific DMCs face common development challenges. These include a slowdown in macroeconomic performance, a relatively high incidence of poverty, and rapid environmental degradation. The Pacific Strategy lays out strategic objectives as well as operational priorities for the Pacific DMCs.

Ninth, ADBs board of directors approved three emergency assistance loans late last year to rehabilitate social and physical infrastructure in the wake of the devastating floods in B'desh, Cambodia and Viet Nam. Our board also recently approved an emergency rehabilitation loan to assist Gujarat. I have also initiated a review of our existing Policy on Rehabilitation Assistance after disasters to identify what steps are necessary for even faster and more systematic assistance in the aftermath of disasters.

Last, and most importantly, ADB has recently completed the formulation of its Long Term Strategic Framework or LTSF. A wide consultation process guided preparation of LTSF. During the year 2000, we held extensive consultations with our board directors, borrowing and non-borrowing shareholders, multilateral and bilateral development partners, representatives of NGOs and civil society and members of a senior external advisory panel. The LTSF is closely aligned to achieve the International Development goals for reducing poverty and presents ADBs vision and agenda for meeting the challenges in Asia and Pacific during the first decade and a half of the new century, from 2001 to 2015. The LTSF is the essential roadmap for achieving our overarching goal of poverty reduction in Asia and the Pacific.

Excerpts of the speech made by ADB President Tadao Chino at the Annual Meeting of the Board of Governors of the ADB. Text courtesy: ADB review July/September 2001, Kathmandu, Nepal.