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What’s right... and wrong with the euro
2005.06.29 — Business | Europe | Satire | by Barton Castor
Euros are cool-looking. [source] |
The euro has risen 20 percent since its introduction in 2002. It has a lot going for it. First of all, it's a great idea. A Europe united by its money can remain politically independent enough to maintain its various cultural indentities and yet be intertwined enough to avoid armed conflict. Presumably, Britain won't get on board with the euro mainly because it wants to reserve the option to one day invade France.
Second, the euro banknotes are cool-looking. The coins are even pretty cool, especially the two-tone ones. And the name is good; it could have been something awful like "ouaivre" or "müp," after all. But when it was introduced, the euro was scaled to the US dollar. That was a major faux pas.
Technically, the euro was introduced in 1999 at about US$1.18, but only as an imaginary electronic currency; not as paper and coinage. When actual currency was introduced, it has already fallen and then risen again to be almost exactly equal to the US dollar.
The result is that the lowest denomination of banknote is the 5 euro note, which doesn't make much sense. Worse, there are 1 euro and 2 euro coins, which make even less sense. Why should the base unit of your currency be the second-largest coin? The euro 1 and 2 cent coins are already almost worthless. The problem is scale.
[I]nstead of making 40,000 euros a year, a French moustâchiére (a unionized mustache waxer) would make 4,000,000 euros a year. |
The EU could have scaled the euro to be any value it wanted. It could have been scaled close to the yen or our cent, for example, and instead of making 40,000 euros a year, a French moustâchiére (a unionized mustache waxer) would make 4,000,000 euros a year. That wouldn't be very practical, since talking about national budgets would require astronomical numbers like trillions and quadrillions instead of millions and billions. Plus, his BMW would just cost 5,000,000 euros instead of 50,000. This would be something like the old Italian lira.
Alternatively, the euro could have been scaled to our 100-dollar bill, and an Italian touristilleto (a civil servant whose job it is to mock lost tourists) would make 400 euros a year instead of 40,000. It wouldn't matter. The buying power would vary exactly with the value of the currency. Now that same BMW would cost 500 euros. That would be something like the British pound sterling, circa 1890.
There were 240 pence to the pound, but they still needed the half-penny, the even smaller farthing, and the tiny winkie, which was only eliminated after a 1904 Wall Street Journal article titled "Brits Still Proud of Their Tiny Winkies."
[T]he dollar isn't worth much anymore....One of LBJ's dollars was worth six of GWB's. |
So what's wrong with scaling the euro to the US dollar? Mainly, the dollar isn't worth much anymore. It has lost 85% of its value in the last 40 years. That's right. One of LBJ's dollars was worth six of GWB's. They also weighed two-and-a-half pounds each back then, but that's a change for the better.
Not much costs less than a dollar—not much you'd want to buy anyway. The "dollar store" has replaced the "five-and-dime" now. Only sodas and candy cost less than a dollar—out of a machine, I mean, not at a movie theater, where you'll pay upwards of ten bucks for a knapsack of Twizzlers and a bucket of Sprite.
[A]t a movie theater... you'll pay upwards of ten bucks for a knapsack of Twizzlers and a bucket of Sprite. |
But it's at the bottom end of the scale that US currency really gets sad. The penny is now a nearly valueless coin. No one wants them. They sit in drawers and jars... or mud puddles. You can't even use them in vending machines. You can use them at automatic toll booths around Chicagoland—even tho the sign says not to—but you have to pour them in slowly so they all get counted. Heh heh heh.
The EU should have scaled the euro not to equal one dollar but to equal five dollars. |
The EU should have scaled the euro not to equal one dollar but to equal five dollars. The lowest denomination banknote would be 1 euro, and it would be worth something. Coins would start downward from 50 cents just as they do now: 20 cent, 10 cent, 5 cent, 2 cent, and 1 cent, all worth five times their current value. So a 20 cent coin would be about equal to the US dollar. And a 1 cent coin, worth about a nickel US, would actually be worth picking up on the street and could be used in vending machines.
This would serve the Europeans well in the future, as inflation chips away at the value of the currency. Of course, with the Euro currently at $1.20 and moving up, maybe they won't have to worry about that after all.
f e e d b a c k
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