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Tuesday, 28 August, 2001, 15:42 GMT 16:42 UK
Euro launch creates inflation fears
Distribution of the new notes and coins will start in the next few days
On 1 January the euro, the single currency for the twelve countries of the eurozone, becomes legal tender, with shoppers having to pay for goods in the new currency. Later this week the European Central Bank will begin distributing the new notes and coins to banks, and is launching a campaign to inform the public. But some fear that retailers are trying to pass on the costs of conversion to their customers.

Fears that the launch of the euro will boost inflation are starting to grow.

Advocates of the currency say that its launch should lead to greater price transparency, with consumer power across Europe eventually forcing prices lower.

However, others say that the launch of the euro will allow some retailers to surreptitiously raise prices.

The European parliament's Economic and Monetary Affairs Committee has heard a mixed bag of evidence from retailing experts across the eurozone.

Some retailers say that there have already been price rises linked to the cash changeover and there will be more.

Although the euro was formally launched in the financial markets in 1999, for most citizens of the twelve countries involved it still has no tangible existence.

In some cases, suspicions of the new currency run high.

One survey earlier this year suggested that over 60% of euro-zone citizens expect prices to rise when euro notes and coins are introduced.

European banks had previously warned that the introduction of euro notes and coins could result in an increase in prices by as much as 1%.

Euro impact

The impending arrival of the notes and coins, four months away, is already making itself felt according to the evidence heard by members of the European parliament.

A spokesman for Carrefour, the French-based international supermarket business, said that some suppliers have already brought in price rises early.

But Patrick Armand added: "Competition is ferocious, the euro is yet another opportunity for winning over clients, keeping clients, or losing clients."

A representative of a Dutch consumer association said already errors were being made in converting prices.

About one in five firms in his country were giving prices both in guilders and euros, but errors had already been made in converting prices.

About 15% of the conversions had been wrong, he said.

Conversion troubles

The problem arises as prices in national currencies are converted to euros.

Suppliers are keen to have easily understood prices at or close to round numbers.

In making the conversion most appear to have chosen the next round number up rather than down.

A spokesman for the German Retailers Association told the committee that small companies with narrow profit margins would probably have to raise prices at some stage, otherwise he said some might face the risk of bankruptcy.

However, he said he did not expect excessive price increases.

The committee also heard that some businesses might raise prices later next year in an effort to recover the costs of making the changeover.

One member of the Committee, Jules Maaten from the Netherlands, said there have already been examples of what he called abusive rounding up of prices by shopkeepers.

The euro may well bring long-term benefits to its citizens. But the danger may be that the short-term costs will weigh more prominently in the mind of many consumers.

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Andrew Walker
"Suppliers are keen to have easily understood numbers"
See also:

14 Aug 01 | Business
Euro awareness is weak, say critics
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