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Thursday, 24 May, 2001, 17:37 GMT 18:37 UK
Worries over euro change
France prepares for the introduction of the euro
France prepares for the introduction of the euro
By the BBC's Newsnight Economics Editor, Evan Davis

There are fewer than seven months to go until the euro moves from being a virtual currency to a real one. But is business ready for such a huge undertaking?

Virginie Roger of La Gaterie feels that the answer is no. She believes it will be difficult for people to adapt to the euro.

"They have found it difficult enough changing from old francs to new francs," she says, "it makes it more complicated for us in business."

Experience of change

The last change to a French currency was in 1960 - when two noughts were cut off the ancien franc to make a new franc.

It required little arithmetic skill for shoppers to cope. This time, getting from francs to euros requires division by 6.559.

Virginie Roger:France is not ready
Virginie Roger: France is not ready

But for small shops, the confusion is not the real problem. It is seemingly trivial details that in fact promise a nightmare for the period when two currencies collide - when the euro and the franc co-exist for a few weeks at the start of next year.

Come January the shops will not handle two currencies at the same time - the tills are not big enough.

They will take both currencies, and give change in euros.

Simple - or is it?

Where will the euros come from?

Shops as banks

In essence shops and cafes actually serve two functions. Obviously they sell things but they also act as banks, storing bits of money and also distributing small denomination notes and coins.

The problem on 1 January is that banking function is going to become really important and yet the shops are not particularly well suited to carrying it out.

The shops might need to carry 10 or 20 times the float they normally do in order to be able to furnish change. That threatens severe disruptions to commerce at the beginning of next year.

It is not hard to conjure up various nightmare scenarios.

Nightmare scenarios

The first possible nightmare scenario, and perhaps the least serious, is confusion and queues.

Professor Ludo van der Heyden of the INSEAD business school cites a study of a Dutch railway station. He says that because of the length of transactions on 1 January, the study found that by 9am in the morning 100 people will be queueing at the station.

Prof Heyden: concerned about change over
Prof Heyden: Concerned about change over
If they keep coming and do not get discouraged the study found that theoretically the queue would have grown to 1,200 by the end of the day.

The second possible nightmare involves security problems for shops loaded with extra cash.

The problem will arise when stores are waiting for secure trucks to remove the old French francs. It brings opportunity for crime.

Nightmare number three is where a shortage of secure transport stops cash getting out fast enough to keep commerce going.

But what happens if the cash supply system dries up for a few days?

ECB:early note release=security risk
ECB:early note release=security risk
Stores could actually close according to Professor van der Heyden.

Some have suggested tanks may come on to the streets. In short it is Europe's biggest nightmare since the millennium bug.

Well, it may not be that bad - but it is a headache.

It would help everybody if small notes were distributed ahead of e-day on January the first. Just to get people ready.

Alas, that's not the view of the European Central Bank, which thinks early release of notes is a security risk, and not allowed for in the Maastricht Treaty.

Lessons to learn

Perhaps the lesson of this great euro project is that no one is really in charge.

The national governments only control the coins and there is not much action there.

The notes are under the control of the European Central Bank but the bank did not write the laws governing the notes and nor can it change them. The banks real preoccupation is interest rates, the exchange rate - not logistics.

A few days disruption won't permanently damage the euro or its reputation. And even those warning of potential trouble ahead do support the currency.

But as one of the biggest logistical operations in history, euro conversion is rightly causing new year nerves.

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See also:

24 May 01 | Business
Pound hits six-month low
24 May 01 | Vote2001
Is the UK ready for the euro?
15 May 01 | Business
Business ill-prepared for the euro
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