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Tuesday, 12 June, 2001, 13:01 GMT 14:01 UK
Euro changeover could mask price rises
Euro notes and coins
Prices are set to rise when the euro is introduced
Europe's banks have warned that the introduction of euro notes and coins could result in an increase in prices by as much as 1%.

The Banking Federation of the European Union has said inflation would rise when euro notes and coins go into circulation at the beginning of 2002.

Over 60% of euro-zone citizens expect prices to rise when euro notes and coins are introduced

European Commission Poll
The Federation's view reflects concerns that prices will be rounded up rather than down when converted into euros.

However, Wim Duisenberg, president of the European Central Bank, has argued that prices will be rounded down as well as up, and he is therefore not expecting a significant effect on inflation.

German price rises

Last month Germany, the biggest eurozone economy, saw prices increases for many food products and petrol.

The government has blamed the rises on an outbreak of foot-and-mouth disease and BSE.

But German consumer groups have complained that businesses are raising prices by as much as 10% in readiness for the changeover to the euro.

There was similar criticism in the 1970s, when Britain decimalised its currency.

Some businesses were accused of exploiting decimalisation to push up the cost of basic goods and services.

market stall
Basic commodities are becoming more expensive in Germany
Martin Hoefner, chairman of the Federation's monetary affairs committee, is confident that prices for goods, such as food, will not be affected because price transparency is high.

But with services, he warned: "You might find that lower margins mean there is not a simple transfer from the national price to the euro price."

Even the authorities are accused of taking advantage. In Chemnitz, parking meters, which cost two deutschmarks an hour, will be converted to 1.2 euros - the equivalent of 2.35 deutschmarks.

Growth to rise?

Additionally, the Banking Federation is concerned that inflation will be fuelled by some consumers bringing forward their purchases so that they do not have to use the new currency.

The possibility of inflation caused by the euro coming into circulation should not be underestimated

Martin Hoefner, Banking Federation
It has warned against "complacency" over inflationary risks, saying that economic and pay policies need to guard against higher wage demands.

As well as increasing inflation, the changeover could boost economic growth by about 1% during the first year.

This would be due to the demand created by the distribution and protection of the notes and coins, as well as investment in new dispensing machines.

According to polls, more than 60% of Germans view the single currency with scepticism and less than 10% have switched to euro-denominated bank accounts.

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31 May 01 | Business
Business and the euro
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