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The Euro Panic Europe is bracing for strikes, mechanical breakdowns and an epidemic of scams when its new bills and coins arrive on Jan. 1. Is this monster really that dangerous?

By Christopher Dickey and Barbie Nadeau NEWSWEEK INTERNATIONAL

June 11 issue — The machines failed. In city centers long queues formed like Depression-era bread lines, the people hungering now for cash from dispensers that no longer worked. In the countryside, cars backed up for miles as automatic tollbooths failed to digest the strange new coin. Service stations stopped serving fuel. Vending machines no longer vended. Parking meters quit their vigil over the curbs. Strikes erupted. Counterfeiting and street scams exploded. Toll roads and train stations backed up. The day that was supposed to mark a glorious milestone in European unification—E-Day, Jan. 1, 2002, when a dozen countries on the continent began using the same euro banknotes and coins—was remembered as the day that Europe stopped dead in its tracks...

SUCH IS THE SPECTER of disaster now haunting a jittery continent. Not since the Millennium Bug came and went without biting so much as an ankle has any place seen such an outpouring of scary prognostication from smart people with serious authority. In one startling day of testimony before the European Union two weeks ago, continentwide associations of consumers, pensioners, workers and retailers used words like “scandal,” “chaos” and “tragedy” to pillory the European elite for its failure to stave off what they described as an inevitable doomsday. Last week the European Federation of Accountants, not known as a bastion of apocalyptic soothsayers, complained that many businesses seem to have “no understanding of the commercial risks of not being ready,” and warned of an epidemic of missed payrolls, bills, even credit-card payments. The same day the European Parliament debated a report citing the continent’s “astonishing lack of preparedness” for the introduction of the euro, the European Parliament warned that an outbreak of problems on E-Day “might expose the entire European project to criticism. The stakes are high.”

It’s hard to believe anyone could have failed to notice what the accountants, reverting to understatement, called a “foreseeable event.” A decade ago the European Union decided to launch the euro as its most practical and powerful symbol of unity. Many nations opted out, determined to protect their beloved banknotes, but most threw in. On the first of January 1999, continental Europe started setting many prices in both local money and the euro, which remains a “virtual currency,” good for stocks, banks or most any transaction that does not require cash. During the year 2000, businesses were to start preparing to keep records, do deals and make change only in euros. It seems that not only did many businesses ignore that advice, but polls show that many of the 300 million people in the 12-nation “eurozone” still don’t know that drachmas, escudos, francs, guilders, lire, marks, markkas and all national currencies will begin to be phased out Jan. 1. They will circulate alongside euros for about two months, but will become illegal tender the moment the changeover ends, no later than midnight, March 1.

The worries start now, at least for those aware that E-Day is coming. On a continent where up to 20 percent of the wealth is believed to be stuffed into mattresses, sock drawers and safe-deposit boxes, fear of the tax man is rife. As of Jan. 1, 2002, banks will be reporting anyone changing large sums of cash for euros to the authorities. So billions are now pouring out of the vast “black economy” and fueling everything from senior-citizen spending sprees in Germany to a 20 percent run-up in real-estate prices at holiday destinations like the Costa del Sol in Spain. The 10,000-peseta note, once a rarity because it was the favored method of secreting cash, is now in widespread circulation. Some economists even cite the black market’s preference for dollars and the uncertainties surrounding E-Day to explain the mysterious weakness of the “virtual euro,” which hit a six-month low last week. There may be something to this black-market theory. Last year German Customs registered a 37 percent increase in cash intercepted at the borders and attributed most of that to the pre-euro rush. European mobsters have put their laundering machines on maximum load. Seven Italians were arrested just last week for shuttling lire to Switzerland and dollars to Sicily. “With dollars, I am not taking any risks,” says a 69-year-old entrepreneur in the Paris garment industry. He is making regular visits to currency-exchange windows to stock up on dollars, and planning a quick trip to a Caribbean tax haven. “Of course I’m not going to take all my money in suitcases to the Banque de France and ask them to change it.” The Mystery of the Weak Euro The scare scenarios predict a sharp turn toward the chaotic when the “Big Bang” hits. Hoping to overwhelm counterfeiters before they can exploit a nascent market, the European Central Bank decided to flood the 12-nation eurozone with 10 billion euro notes and 50 billion coins on the first day, Jan. 1, which will require the largest logistical operation in Europe since World War II. Police are preparing for a rash of holdup attempts. Nations across the continent plan to deploy their armies to guard convoys. French President Jacques Chirac last month mobilized the police, the Army and “all economic, administrative and social employees” to ensure the success of Europe’s most significant reform “in the last 50 years.” “If there is a strike, there is nothing we can do about it. That’s life.” — PHILIPPE GERARD SAVEUR director of the French Bank Association

He may have been responding not to the threat of holdups, but to a threat by French armored-truck drivers to strike on the eve of the big E-Day delivery if their security concerns are not met. “The gangsters may be waiting for the euro to arrive to attack,” says union leader Joel Le Coq. “We’re really worried.” He says a strike is “probable,” and also complains that the Big Bang may require his drivers to work longer than their newly won 35-hour week, creating a “security risk from fatigue.” So much for the call to mobilize for a united Europe. The bankers who will rely on armored-truck drivers for euros are resigned. “If there is a strike, there is nothing we can do about it,” says the director of the French Bank Association, Philippe Gerard Saveur. “That’s life.”

Chaos, if it comes, will fall on a largely unwitting continent. In their petulant warning to the ill-prepared last week, the European accountants said that many companies don’t realize that their software is not ready for the euro, and that on Jan. 1, they will no longer be able to make credit-card payments in their old currency. (There is no changeover period for credit cards.) The level of ignorance may be worst in Italy, where government surveys show only one in three people know the lira will disappear for good, and only one in four businesses has a clear concept of how to get the new currency come E-Day. “I’m assuming they will bring it to us,” says Gino, owner of a cafe in Ostia, a seaside community outside Rome. The president of the Confcommercio national retail association, Sergio Bille, worries that “this indifference is going to turn into mayhem come Jan. 1.”

Enter the next scare: scam artists. The London Times recently warned that the new notes could “give birth to the eurocriminal,” a nefarious sort exploiting the ignorance of a populace that has seen the euro, so far, only in pictures. In March the European Commission vowed to track bogus euros at the central bank’s Counterfeit Analysis Center and deploy Europol to bolster investigations of counterfeiting rings. The head of the European Pensioners Association, Georges Debunne, told the EU last month that his 10 million members were frightened “that they will get mixed up with the new notes,” and fall prey to confidence men. “The lack of proper preparations is nothing short of scandalous,” he warned.

One answer: crash courses on the euro. Last month the European Commission prodded laggards like Germany to spend more on euro education, to which Germany’s Finance minister responded that ad campaigns won’t ease doubts about the euro. Nonetheless, on the advice of the EC, many nations are trying to rally kids, hoping their enthusiasm for the euro will rub off on their elders. “Eureka! Learning about the euro from Carletto and Cristini” is a new Italian government cartoon about the spending adventures of two earnest teens. A more edgy Spanish-government TV ad spoofs the witless Garcia family, sitting around watching a neighbor on “Who Wants to Be a Millionaire.” When the neighbor calls for help on the date of the euro launch, Papa Garcia pretends to be the answering machine and says, “There is no one here to take your call.”

Many experts predict Europeans will have serious trouble counting euros. In January a Dutch-think-tank study predicted a “bottleneck that boggles the imagination,” as people queue up at railroad and airport ticket windows, tollbooths and gas stations, fumbling to make change in euros, or just figure out what it is. “Europe has the potential to close down,” the study said. Another study calculated the average extra time it would take for people to do the mental math of converting drachmas or escudos to euros: 30 seconds. That adds up. A financial director of Holland’s biggest supermarket chain, Albert Heijn, fretted recently that “customers will end up waiting in line for six months, or worse, get fed up and walk out of the store without paying.”

The more you listen to all this, the less confidence you have in European Central Bank preparations—and the more realistic predictions of an E-Day “meltdown” sound. The central bank expects most Europeans to wake up Jan. 1 and extract new euros from automatic-teller machines in a smooth transition. In the 12 Eurozone countries, the ECB predicts, 60 to 90 percent of all Euros will be doled out by ATMs. But the ECB plan makes some bold assumptions: that each of the countries can convert most or all of their ATMs in one day, or no more than a week, and that customers will draw no more than they normally do. In fact, ECB director of banknotes Antti Heinonen admits that “it’s very difficult to anticipate” what consumers will do. “Maybe the first time they take a little amount, or maybe a big amount.”

There’s a lot of maybes. Getting the ATMs ready isn’t simple. Each machine is equipped with two to four cash boxes, which are not sized for euros, and must be replaced or adjusted to hold them. Either way, somebody has to service an estimated 200,000 ATMs in Europe. That will require 100 man-years of labor, says Barry Harrison, a vice president of Diebold, a leading maker of ATMs. “You simply can’t do this in the last two weeks of the year.”

Many Europeans are screaming for a technical fix: front-load the ATMs with euros ahead of time. It’s not that simple, industry experts say. Front-load with euros, and many old ATMs will have to be reloaded with national currencies more frequently, creating potential chaos before E-Day. Worse, only about 15 percent of all ATMs in Europe are modern enough to dispense two different currencies at the same time. “What the ECB may not understand is just how many old machines are out there,” says David Young, director of strategic marketing for De La Rue, a company that makes cash-handling equipment. “Maybe outside their offices the machines are new, but not in an Irish village or an Andalusian town.”

This is simple stuff, involving the number and size of cash boxes, not the complex software problems of Y2K. Yet many banks are not scrambling to head off this potential megaglitch. “With Y2K, nobody knew what all the issues would be, so that led to a high level of concern,” says Peter Woeffen, the euro product manager for Wincor Nixdorf, which offers euro-conversion training and kits for banks. “With the euro, we know exactly what we need to do. But because of that, some people aren’t taking it too seriously.”

Perhaps the average European simply isn’t ready to take another big scare to heart. We’re only 18 months past the Millennium nonevent, after all. But the doomsayers would have us consider all the simple, everyday machines other than ATMs that are also largely unready for the new euro: tollbooths, vending machines, ticket dispensers, parking meters, phone booths and so on. Sure, plastic may be replacing coin anyway, but not yet in a lot of places, and hardly at all in Mediterranean countries like Italy, where cash is still king. What’s a tourist to do, faced with the lira-operated lights that illuminate hidden mosaics and frescoes in “destination churches” across the country, or the taped guides at St. Peter’s Basilica? The Italian Tourism Ministry couldn’t answer that. What of the hilltop villages in Sardinia, where lire coins that have been out of official circulation for decades are still accepted? “I don’t know how they will reach those businesses,” says Bille. “It’s possible that the lire will live on in some communities for decades to come.”

Perhaps the only institution that voices no concern about E-Day is the one planning it. European Central Bank president Wim Duisenberg told skeptical members of the European Parliament last week that his organization is taking “a global perspective covering all aspects” as it moves forward with the conversion. Presumably that means everything from Europe’s ambition to promote the euro as a leading global currency, to the potential trouble at tollbooths. On Aug. 30 the bank plans to unveil the final, detailed design of the new euro coins and notes, 80 percent of which have been printed already, and begin an intensive education campaign.

The bank has adamantly refused to be swayed by the gloomy forecasts. Everyone from accountants to pensioners has pushed the ECB to start rolling out euros gradually, in order to prevent any sudden shocks from the Big Bang. European Parliament President Nicole Fontaine has urged the ECB to release small-denomination bills early to mom-and-pop shops, hoping to ease the widely expected lines and trauma of E-Day. But Europe’s central bankers take an open pride in not listening to the popular cry—Duisenberg said as much recently—and they’re not about to start. “If you have a seven-year project, you don’t start to change it when you have six months left,” says European Central Bank spokesman Manfred J. Koerber, who insists that any glitches will be minor. “One thing’s for sure, people won’t run out of money.” Not if the armies of Europe can help it.

-------------------------------------------------------------------------------- With Rana Foroohar in London, Scott Johnson and Samia Marai in Paris, Stephan Theil in Berlin, Friso Endt in The Hague, Emma Daly in Madrid and Nicholas Fiorenza in Brussels

http://www.msnbc.com/tools/nm/nm1.asp?c=N2&b=ie

-- Martin Thompson (mthom1927@aol.com), June 03, 2001

Answers

There's a crucial difference between this threat and Y2K: The deadline can be extended. Or, the conversion can be simply called off completely. And if this "meltdown" does hit, the conversion can simply be rescinded, mitigating the impact. For these reasons, any "doomsday" Y2K-like scenario is relatively unlikely. It still could happen if mismanagement is sufficiently severe, however. And this can happen: The California Power Crisis is a case in point.

There are major powers-that-be that are strongly pushing for the Euro conversion, increasing the chance of such a mishap. However, these powers are well-funded enough to hopefully accomplish the needed "remediation" in time to avoid this outcome. Will this remediation effort be as successful as for the Y2K bug, in at least scattering out and delaying the failures? Only time will tell.

-- Robert Riggs (rxr.999@worldnet.att.net), June 03, 2001.

It sounds to me that mismanagement is such a sufficiently dangerous possibility as to cause a real problem.

-- LillyLP (lillyLP@aol.com), June 03, 2001.

The timing couldn't be worse IMHO. Global economies are increasingly weak and from all I read, 1Q 2002 is going to be no picnic. To have Europe in a mess with a currency that nobody understands is unthinkable.

-- poconojo (jberman478@aol.com), June 04, 2001.