Count down to the Euro

Charlotte Denny and Mark Milner, Guardian News Service, London

As an exercise in logistics the introduction of the single currency is monumental in scope. The euro coins being minted will weigh the equivalent of the Eiffel Tower -- 24 times over. Place the currency notes end to end, tag on the notes they are replacing and the resulting paper chain would stretch to the moon and back five times.

But why bother? Will the introduction of the euro bring tangible economic benefits to the single currency zone's 300 million citizens? Or, as some critics suggest, will the benefits of a 12 countries/one currency system simply be swallowed up by the costs of, for example, converting around one billion bank accounts, seven million vending machines, 140,000 cash machines and around four million cash tills?

The death of the German mark, the passing of the peseta, will certainly make life less complicated for consumers. Business has been benefiting from the ability to do its sums in one currency for 12 countries and from the certainty of fixed exchange rates since the beginning of 1999. The introduction of notes and coins will spread that benefit to consumers and holiday makers spending across borders. That is not to be sniffed at. According to some reports, a traveler starting with pounds sterling 100 who criss- crossed Europe changing his or her cash to local currency at each border would end up with about pounds sterling 50, without having spent a single pound.

Then there is price transparency. Consumers will be able to see if the prices they pay at home -- or the wages they earn -- are the same as those in other countries without having to indulge in complicated mental arithmetic or buy a calculator.

Consumers are not convinced that the euro will bring transparency, forcing prices down. Instead they say that retailers will use the changeover as an opportunity to slip in some stealthy price rises.

"The main public concern about the changeover is that it will lead directly to a rise in prices; associated costs may be passed on and firms may take advantage of the changeover to round prices upwards," the Bank of England notes in its latest guide to the changeover process.

Although the Bank and the European Central Bank reckon that competition and price transparency will tend to push prices in the other directions, Europe's consumers are not that sure.

Beyond the short-term considerations lies a deeper goal. Supporters of the euro argue that the introduction of the single currency is an essential component in the creation of a truly single market -- the free movement of goods and services within the 12 member states which they hope will bring about greater economic efficiency -- leading to greater productivity and higher living standards. The European commission is concerned that the pace of integration is slower now than ten years ago. The introduction of notes and coins could be just the kick the process needs.

The model is the single market of the 50 U.S. states, the world's largest, and, until recently, most successful economy.

The price, however, is that all countries must accept the one- size-fits-all interest rate set by the European Central Bank, even though the economic conditions in the 12 member states are very different.

"You have different political structures, different economic structures but only one currency -- different regions with the same monetary policy when they require different policies," says Holger Fahrinkrug at UBS Warburg in Frankfurt.

Although the U.S. also contains diverse economies there are some factors which explain why all 50 U.S. states can live with single interest rate. Americans are a highly mobile workforce accustomed to moving to where the jobs are. It makes it easier that America is not only a single currency zone; it is (largely) a single language zone, too.

For example, when the manufacturing heartlands of the midwest fell into decline, undercut by more competitive industries abroad, Americans simply moved on. By comparison, cross-border migration in Europe is the exception rather than the rule, and on the whole Europeans are much less likely to move even within their own countries than Americans are to move from state to state.

Secondly, when parts of U.S. fall behind, the impact of recession is cushioned by large government transfers in the form of higher unemployment and social welfare payments. America's social security system is a lot less generous than Europe's but it still provides a safety net for those hit by economic change and is a fiscal boost to depressed regions.

There are no proposals at present for a Europe-wide tax system which could offset the ups and downs of the economic cycle. Fiscal transfers in Europe -- regional aid and the common agricultural policy -- are relatively small compared with those in the U.S. and there is no immediate prospect that taxpayers in one country will be prepared to fund the dole queues in another.

To get around this, Europe set strict conditions for those countries wanting to join monetary union -- aiming to bind economies closer together by bringing inflation, interest rates and the public finances into line so they could live with the discipline of a single interest rate. Without labour mobility or handing over large amounts of government cash, the only way for countries in recession to adjust to a fixed exchange regime and a single interest rate regime would be by pay cuts to make the population competitive again.

However, the experience of the 12 countries in the eurozone has been of widely different economic performance and few signs of the necessary labour market flexibility needed to allow them to adjust. While Germany, Europe's largest economy, is in recession, Ireland, the Celtic tiger, is still robust.

It has not all been bad news. The euro may not have been a big hit on the foreign exchanges -- it has fallen 25 percent against the dollar since its introduction -- but, as Fahrinkrug notes, the fact that the euro has been weak "is a plus for European exporters".

British manufacturers battered by the strength of the pound have been casting envious eyes across the Channel at their European rivals.

Meanwhile, the Pope has emerged as a big fan of the euro and not because his profile will adorn some 670,000 coins being minted by the Vatican.

"The Holy See pays careful attention to the building of a united Europe," the pontiff said recently. "This spirit of negotiation and dialogue has allowed nations that were once enemies to work together and the single currency is a further step in that process." Price that, if you can.