The euro will change the lives of people living in Western Europe when it is
introduced into circulation at the start of next year. But it will also affect
people living in Eastern Europe and the former Soviet Union, where the German
mark is widely held and used as a transaction currency. Those marks will cease
circulating shortly after the euro's introduction. In this third of a three-part
series on the common currency, RFE/RL correspondent Mark Baker looks at what
impact the euro will have outside the 12-nation euro-zone. v9n1ns
Prague, 15 June 2001 (RFE/RL) -- The German central bank (the Bundesbank) estimates
that more than one out of every three German marks circulates outside of Germany
-- signifying billions of marks. The banks says the majority of them are in
Eastern Europe and the territory of the former Soviet Union.
Because of the mark's stability, and Germany's role as a place of employment
for Eastern European workers who send their money home, the mark has evolved
into a de facto second currency in the lands to the south and east of Germany's
Montenegro and Kosovo have even adopted the mark as legal tender. Other countries
have pegged their currencies to the mark through currency boards. Bosnia uses
a unit of exchange called the "convertible mark," which trades on
a one-to-one basis with the German mark.
But the mark -- along with the other currencies of the European Union's 12-nation
euro-zone -- is about to disappear.
On 1 January 2002, more than 250 million people in Western Europe will begin
exchanging their national currencies for the euro. Older currencies and euros
will circulate together until the end of February. After that, the national
currencies will no longer be used.
That does not mean the currencies will be worthless. Central banks will continue
to exchange them for euros for several years to come. But for all intents and
purposes, Western Europe's national currencies -- including the mark -- will
cease to exist.
Hans-Werner Sinn of Germany's Ifo economic research institute has looked into
all aspects of the coming changeover. He says Eastern Europeans, like their
counterparts in Western Europe, will eventually have to exchange their marks
"Clearly, these Deutschemarks aGerman marksi will no longer be useful in
the long run. So people will have to bring the Deutschemarks in to their respective
banks and exchange them into euros. That will have to happen in the spring of
next year aby the end of the February deadlinei."
Antti Heinonen, the director of banknotes at the European Central Bank, or ECB
-- the institution that is coordinating the switchover to euros -- says that
the change should not cause many problems for most Eastern Europeans.
Heinonen recommends that people outside the euro-zone simply deposit their marks
into a mark-denominated bank account. On 1 January 2002, these accounts will
automatically be switched over to euros -- in most cases without incurring a
"I think in most cases the smoothest way is to open an account, a euro
account -- or let's say today to open a amarki account or a French franc account
or so on -- and then, let's say after the first of January, go to the bank --
because they have changed these accounts to euro accounts -- and then you deposit
your money to the account. And if you need some euros, you take some euros from
Peter Nicholl, a native of New Zealand who is the governor of the Central Bank
of Bosnia and Herzegovina, agrees that setting up a bank account is the easiest
solution. But he says that convincing people to put their savings into banks
will be difficult in countries -- like Bosnia -- where confidence in the banking
system is still fragile.
Nicholl estimates Bosnians are holding as many as a billion German marks under
their mattresses, and hopes that at least some of these marks find their way
into the banking system.
"It's possible, I think, that people holding athe German marki under the
mattress as savings may be prepared to deposit it at the banks. A year ago that
would not have been possible because the banking system was so weak -- that's
why the people had the Deutschemark under the mattress. But the banking sector
is improving. There is a limited deposit insurance scheme that has started.
So I think there is a possibility that some of athe marksi will actually go
into the banking system."
Nicholl tells our correspondent that it's still unclear whether Bosnia's merchants
will accept German marks in payment after the February deadline for when euro-zone
currencies will cease being legal tender.
"That's hard to say. That's a possibility because athe marki has been used
here for a very long time." To educate the population on the mechanics
of the changeover and to encourage them to surrender their German marks, Bosnia's
bank plans to launch a publicity campaign next month.
Nicholl says the switch to euros will not present a problem for the overall
banking system. After 1 January, Bosnia's convertible mark will simply be pegged
to the euro, much in the same way that it is now pegged to the German mark.
The same is true for other countries using a currency board or linking their
currency to the mark.
The situation is similar in Macedonia, where bankers say that between 400 million
and 1 billion marks are held in private hands. While Macedonia does not use
the German mark officially, it is the currency of choice for people to hold
Hari Kostov, the general manager of Komercjalna Banka in Skopje, admits that
convincing people to part with their marks will take some effort. He says Macedonia
is also launching a publicity campaign to encourage people to deposit German
marks into bank accounts.
Kostov tells RFE/RL that to attract more marks, his bank will exchange them
for euros without levying commissions or transaction fees.
"We have decided that aexchanging marks for eurosi will be done -- just
to facilitate and so on -- it will be done without any fees for athe peoplei."
People living in Kosovo and Montenegro, where the mark is now the official currency,
will have no choice other than to switch to euros with the euro-zone after 1
Reports say that citizens of Kosovo and Montenegro are not very aware of the
euro and that a massive education effort will be needed.
The managing director of the international community's Banking and Payment Authority
in Kosovo was not available for comment, although officials at the ECB say they've
been in contact with officials in both Kosovo and Montenegro about adopting
the euro and that the two areas will be ready.
Ifo's Sinn is optimistic and says the changeover may be more successful in these
areas than elsewhere in the Balkans because the central banks will be involved.
"aAdopting the German mark as the official currency --i this is a unilateral
decision of the government of Montenegro. And they aMontenegrinsi, I think,
will not do it very differently from other countries. They will allow their
banking system to convert the currency. They may even do more because it's an
official currency abecausei the central bank will be involved in this activity."
Sinn says that in the long run, all of Europe -- East and West -- will benefit
from the euro.
"The euro will significantly facilitate trade within Europe because the
exchange risk is no longer there. Trade between Eastern and Western Europe will
be handled in terms of euros. Prices will be stipulated in euros. And I guess
the euro will become the second currency in the Eastern European countries --
even before they officially join the European Central Bank."
But the currency's first challenge -- in Eastern Europe at least -- will be
to replace the mark in people's minds and mattresses.