The Euro

The Euro is now the official currency for transactions in many European nations. Those nations participating in the great monetary unification have retired their old currrencies and are using the new one. This new Europe-wide money can be spent in any of the participating nations without the old exchange rates and bank fees.

The design of the Euro coins were botched. Many appear nearly identical and the difference in size between one denomination and another is quite difficult to recognise. The one cent coin is incredibly teensy - comparable to a mosquito and just as annoying. And the European Union breached its own directives by making two of its coins extremely high in nickel content. Nickel is a metal to which 20 percent of the populace has an allergy.

Check out the European central bank site for full scale views of the coins.

The bills, in contrast to the stupid coins, are ingenious with micro-writing and laser strips and watermarks and silk threads and all manner of devices to give counterfeiters nightmares. So, it took a full three days after the introduction of the new money for the first counterfeits to be passed.

One other thing. Officially, the plural of Euro is... Euro. This is one EU directive that the Irish will no doubt ignore(s).

A Political Currency

The whole premise of the Euro is unique in the modern world. Normally, a new currency is created after some sort of political unification. But, the Euro's key purpose is to promote political unification. With everyone using the same money, political harmony will follow. Yes, trade within the Euro zone will be easier without having to deal with exchange rates and bank fees. But, the Euro is above all else a political statement rather than simply a medium of exchange.

With the switchover to the Euro for everyday business, the point has been driven home to hundreds of millions of European citizens. Hey, this European business is really serious. It's not just about grabbing subsidies and watching political bigwigs parade in front of the cameras.

The obvious fact is this. Who controls the money controls everything.

An Economic Currency

So, how effective is the Euro in its secondary role as a real live currency?

It has definitely made trade within the Euro zone easier and it does indeed promote economic harmonization. For the first time it's obvious that Big Macs in Ireland cost the same as they do in Germany. For the first time we can easily tell that the Irish pay lots more for milk than anyone else.

But, will knowing such facts actually result in harmonized prices? Who knows? Any Irish person I know who has vacationed anywhere else in Europe has been astounded by how much cheaper things are in general. But this knowledge doesn't seem to matter a whit when it comes to reducing Irish prices.

Euro Versus Dollar - 2007

I wouldn't bet against the US in the long run, but the dollar is weak and the Euro stronger at this stage of the game. It's not that the Euro has proved itself so strong, but rather that the dollar has weakened. A combination of huge budget deficits and a huge trade imbalance has weakened the mighty currency. Add in terrorism fears, hurricanes, expanded security costs....

War, weather and terrorism, of course, are the great imponderables in the current equation.

Another Potential Problem

What happens when economies of the member states don't converge? The lesson of Ireland is instructive. Ireland has had one of the fastest growing economy on the planet. Inflation rose to 7% at one point. House prices rose inexorably.

What was needed, the money gurus told us, was tight money - higher interest rates to dampen spending. But, what the Irish bankers wanted was not to be. Instead, in an overheated housing market, cheap money was easily available and house prices continued to rise. There wasn't any damping of demand from a rise in mortgage rates. The result of handing over control of the money decisions to the European Central Bank was that Ireland went through a period of inflation and normal monetary restraints weren't available to policy makers.

The lesson? The needs of tiny Ireland pale against those of the rest of the European Union.

In short, the needs of the many outweigh those of the few. Which sounds very much like a definition of democratic government. The lesson again is that the euro is bringing all of us into a unified whole and nation states in Euroland have lost some key powers.

Britain

Britain has opted out of the first round of monetary union. The UK will gamble that it can stand apart from all its continental allies and trading partners and rely on the Channel to keep Europe at bay. Successive Irish governments have reaffirmed again and yet again that Ireland is a member of the Euro zone and hang the consequences of a split with its closest neighbour and largest trading partner Great Britain.

Britain seems to be doing fine going its own way and opposition to the Euro has hardened. A referendum is required to scrap Sterling and take up the Euro and poll after poll shows low support for such a switch. So, expect the current situation to continue for the next half decade or longer.

You can follow exchange rate values at XE's must-use currency converter.

The Swami Speaks

It's a big decision when you convert your dollars or pesos or yen to euro. How do you know when to make the conversion?

My own personal experience is that once a currency swing gets going, it takes months and months for it to work itself out. We'll all know when the pendulum is at the bottom of its curve by the fact that rates get fairly stable for a couple of months.

This isn't an economist speaking - just someone who's been watching these swings back and forth with intense interest for the past 30 years.

One strategy to lessen the risk is to convert only a portion of your funds and leave a bundle behind. But, no matter how you act, it's a risk. Read the business section of the papers, consult your Ouija board and leap. For more on bringing money in and out of Ireland, click here.