Euro empowers eastern countries

The introduction of the euro has been touted as an event of huge historical importance for the whole of Europe, affecting everyone from the lottery-ticket sellers of Madrid to the restaurateurs of Paris.

But there has been little room in the single currency debate for those in the former communist countries of the continent. Yet for the housewives of Podgorica, the black marketers of Pristina and the bankers of Belgrade the new currency will potentially play a significant role.

The lands of eastern and south eastern Europe have experienced a fair few number of currency changes over the past decade. But none will be as radical in the long term as the switch to the euro.

The deutschmark, considered a secure currency the world over, has been a store of value for years in the Balkans in particular.

About 30% to 40% of marks in circulation are held abroad, a large percentage of that in the region of former Yugoslavia. Many currencies, such as the Bulgarian lev were - until the introduction of the euro - pegged to it. In Serbia it was considered the second currency, while in Kosovo and Montenegro it became legal tender in November 2000, due to the pressures of public opinion.

One of the biggest challenges facing the chiefs of the European Central Bank, driving seat of the single currency, has been how to persuade people in the region to turn their deutschmarks into euros rather than rush to the US dollar or other known "brand name" non EMU currencies, such as the Swiss franc.

"We're trying hard to stop people from changing their money into dollars, as this will weaken the euro," a spokesman for the German central bank, the Bundesbank, admitted.

An information campaign in the region with leaflets and posters in 23 different tongues from Serbo-Croat to Romanian has been keen to stress: "The euro is coming. The deutschmark is going. The value is here to stay."

Even if they are not yet aware of it, never before have the people of eastern and south-eastern Europe had such an opportunity to feel their power as consumers.

Take Romania. It is an area of stiff competition between the dollar and the deutschmark, but in the western part of the country where the deutschmark dominates, there has been a clear consumer shift to the dollar since June.

A spokesman from the national bank of Romania reports that in the west in the last six months, large purchases have been made in dollars rather than deutschmarks.

So could it be that the decision to lift visa requirements for Romanian nationals travelling in the European Union, from January 1 this year, is linked to efforts to get the Romanians on the euro bandwagon as fast as possible?

Wooing citizens by lifting visa restrictions may be one way of trying to secure the future stability of the euro. But another sure one, says experts, is to make the euro a desirable currency for the black market, where higher value notes are always favoured.

And what of the attitudes of the people of central, eastern and south-eastern Europe, where plane loads of euros have been flying in to replace the deutschmark since early December?

The director general of the bank of Montenegro, Ljubisa Krgovic, reports that enthusiasm is high in the republic, particularly as by allowing it to use the euro, the European Union has as good as accepted Montenegro as a sovereign state - or so Montenegrin officials would like to see it.

But unlike many other Europeans, the 600,000 inhabitants of Montenegro - who until the changeover held about DM150m in bank accounts, and about the same amount again under mattresses - are laid back about the change, having already swapped the Yugoslav dinar as official currency for the deutschmark just over a year ago, just like Kosovo. It also offers hope of stability after years of war and extreme inflation.

"We're a small country and our people have had a lot of experience with currency changes and dealing with two currencies at a time," he says.

But workers at the conversion centre in Podgorica say they fear the changeover is giving both counterfeiters and swindlers a field day. "The change from the dinar to the deutschmark was peanuts compared to the deutschmark to euro change, which is a massive undertaking," says Nebojsa Medojevec, the head of a Podgorica-based thinktank.

But despite the fears, perhaps most importantly there is a strong conviction that the inevitable "euroisation" of the region will give the countries used to being on the periphery of Europe, entry to the western club via the back door.

"This symbolises a new start for Kosovo, and the euro is a currency which has nothing to do with Yugoslavia or the war," says Agron Dida, a deputy manager at the UN-administered Banking and Payments Authority of Kosovo.

"It's a great opportunity for us to use the euro as a bridge by way of which we can pass into the EU," he adds.

Leading politicians in the region have been outspoken about their hopes that euroisation of their countries could supersede the relevance of the European Union enlargement debate, because to all intents and purposes the single currency will create its own, highly pragmatic integration process.

"Suddenly small business men in Kosovo will potentially be able to trade with businesses in Paris or Brussels," Mr Dida said. "Many borders will fall."

Pro-European economists are keen to look to the history of the deutschmark as a blueprint for creating a landscape of stability in which the largely war-torn and politically fragile region could develop.

"A politically-destabilised Germany was put back on track by the introduction of the deutschmark in 1948," says Helmut von der Lahr from the Frankfurt-based Malecki group, a leading financial consultancy firm.

There followed 20 years of absolute stability. Although the deutschmark's success story has in theory come to an end, many German economists like to think it will live on in spirit in the rebuilding of the region.