It's been nearly two months since 11 European Union nations introduced euro bank notes and coins that replaced the national currencies like the French franc and German mark that had been used for decades or even centuries.
The European Central Bank is very pleased with the way 300-million Europeans have accepted their new currency. Gerald Grisse, a former executive in the German Bundesbank and now the ECB's top official in Washington, said the introduction went even better than expected. "And actually the surprise was also that the period of dual circulation of the national currencies and the new currency was much, much shorter than expected," he said. "We had thought up to two months (would be needed) but in fact within two weeks the entire cash changeover was done."
The euro notes have seven denominations beginning with a five euro bill. There are eight coins ranging from one cent to two euros. A euro is currently worth about 86 U.S. cents. When it was introduced as a unit of account three years ago, a euro was worth more than a dollar. It has steadily lost about 25 percent of its value against the dollar.
But Mr. Grisse said as important as its exchange value, the euro is becoming a stable currency backed by a central bank that is making good on its pledge to hold inflation at or below two percent (annually). He expects the euro to eventually gain value against the dollar.
Mr. Grisse said because prices now can be compared in a single currency right across Europe, there will be more cross border shopping and increased competition that should keep prices low. He said the jump in inflation during January was a one-time phenomenon. "We always had in mind that the transition effects of rounding (prices) would lead to a somewhat higher headline inflation rate in January," he said. "But this does not mean in our view that the general tendency should absolutely be the one that you mention, that in the longer-run the euro will lead to more transparency and will lead to lower prices in Europe."
The former central banks of the 11 participating countries continue to exist. But now they are in effect regional subsidiaries of the Frankfurt based European Central Bank that is directed by a board of five governors.
European monetary union remains a work in progress. Important questions of representation in international organizations are unresolved. Should, for example, in the International Monetary Fund, separate national representation of countries like German and France be eliminated in favor of just one ECB representative, who would command more votes than any single country, thus increasing the power of the European Union? Mr. Grisse says these changes are likely to be slow in coming since individual European countries are at present unwilling to relinquish power to a multi-lateral entity.