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Captain Euro

Euro a go-go
(September 27, 2000)

Imagine your parents let you borrow the car so you and your friends could take a road trip across the country. They give you $50 California bucks for gas and tolls and kiss you good-bye. (OK, maybe that would never happen, but just go with it for now.)

Along the way, you cross the state line into

Nevada, where your California money is no good. You exchange your $50 California bucks for Nevada dollars, and since the Nevada money is valued higher, you actually make a little money on the deal. Of course there are a lot more state lines to cross and you could lose money the next time around.

Sound weird? Well,it’s actually what most of the world’s teens have done for years, especially in Europe, where whole countries are the size of U.S. states.

But the money-changing seesaw could be ending in Europe, with the pending circulation of the euro.

So what’s the Euro?

The euro is not short for Europe, it is the name of the new currency shared by 11 European countries. Those 11 countries, plus 3 others make up the European Union or EU. EU nations decided they could create stronger economies and better trading opportunities if they cooperated more. With that goal in mind, the countries set out to develop a common "dollar". Not surprisingly, they decided to call it the euro.

The euro debuted in 1999. But no one is jingling euros in their pockets or plunking them into soda machines. Right now the euro is only a measurement used in non-cash transactions among banks and financial institutions.

EU countries won’t start using real euros until January 2002. And later that year, EU countries will phase out their own national currencies. So, if you're part of a student exchange program headed to Europe you’ll soon find French francs and German marks on their way out and the Euro on its way in.

Money, Money, Euro

The franc and mark, like the U.S. dollar, are constantly being exchanged among European countries. The relative value of each currency fluctuates, depending on international market conditions. So, today, you might be able to trade in one U.S. dollar for about six francs. But six months from now, that same dollar might only be worth five francs.

In other words, the cute shirt that costs 170 francs gets more expensive if the value of the dollar goes down. (Of course, things could go the other way too, and the shirt becomes a better bargain.)

To make everything equal among EU members, the EU gave the euro a permanent value in relation to member nations' currencies. For example, one euro will always be worth 6.56 francs, or 1.96 marks. The same way $1 is always worth 100 pennies, whether you're in New York or Washington state.

Outside EU countries, the value of the euro, like the U.S. dollar, will fluctuate. When it was introduced last year, the euro was worth $1.17 -- a strong exchange rate for EU residents.

But by September, the Euro was worth just 84 cents. Good for the U.S.? Well, not really.

It's a trade thang

For starters, the U.S. economy is growing much faster than the European economy. But for the U.S. economy to remain strong, our trading partners have to do well also. The EU is the United States' biggest trading partner.

If the euro goes down, American products become more expensive to people in France and Italy. American companies are selling less in Europe. Computer chip maker Intel's stock recently fell because it was not selling enough in Europe.

Meanwhile, a weaker euro makes products from across the Atlantic Ocean cheaper. So Americans buy more from other countries and sell less of American-made products.

This can hurt the U.S. because Americans will buy more imported goods and sell less to other countries, creating large trade deficits.

In September, "mega banks" -- the U.S. Federal Reserve and the Bank of Japan -- tried to raise the value of the euro. These banks bought euros in exchange for their own national currencies. They traded in their own strong, high value money for currency that actually has less buying power. But the ultimate effect, they hoped, was to make the euro worth more.

To euro or not to euro?

Many countries would like to join the EU and are eager to adopt the euro. But some other big European countries aren't. Britain and Sweden, which are already in the EU, said no to the euro. They are hesitant to trade in their stable, high value currency for something that might end up being worthless. The euro's recent slide suggested their concerns might be valid.

Denmark will vote this month whether to accept or reject the euro. A rejection is likely to make the keep the debate over euro going for sometime, or at least until its inevitable appearance in January 2002.

What do you think?
Should the EU give up on the euro?

If all the countries of Europe adopted the euro - would that make it stronger?

Should the U.S., Mexico, and Canada adopt a common currency?