The birth of the Euro -- A UPI Package

United Press International reporters greet the historic birth of the euro at midnight Monday with these reports and observations.

PARIS: INTRODUCTION -- THE EURO'S REAL REVOLUTION By MARTIN WALKER, UPI Chief International Correspondent

On Jan. 1 most Europeans will be back to where their great-grandfathers were in that halcyon summer of 1914. It will be possible to board a train in Berlin and potter through Austria and Italy, Franc and Spain and Portugal and back through Belgium and Holland without ever having to show a passport or change one's money.

The advance has been modest. Today's euro is less solid and certainly less attractive than the gold and silver coins of the past. And in these days of heightened terrorism alerts, it would be a bold traveler who did not carry his flimsy European Union passport in its plastic burgundy cover, whatever the European Union's rules on free movement might say. And whereas these freedoms of today's European are restricted to the 12 nations of the eurozone, the ancestor of 1914 could have extended the journey to London in the West and to St. Petersburg in the East.

But it would be churlish to deny the magnitude of this new European project. The launch into circulation of 15 billion new banknotes and over 40 billion new coins has been Europe's biggest logistical enterprise since D-Day in 1944. And finally, some 45 years after the Treaty of Rome was signed to bring the European Economic Community to life, the pacified citizens of Europe's traditionally warring tribes have some tangible symbol of their new identity jangling in their pockets.

The economic consequences of the arrival of Europe's new single currency are incalculable. It may or may not kick start the overdue reforms of the sluggish French and German labor markets, ignite an entrepreneurial culture or impose real price competition across a market of 300 million prosperous consumers. It is too soon to tell whether the euro will invigorate Europeans or huddle them behind a currency version of the Maginot Line in the vain hope of preserving their welfare states and jobs from the furious competition of globalization.

But the political consequences of the euro are already plain to see. The tight monetary discipline imposed by the European Central Bank has already broken the dominance of center-left governments that used to run 13 of the EU's 15 nations. Italy fell earlier this year, Portugal fell last week, and the Socialists of France and the Social Democrats of Germany are worriedly facing the coming year's elections with unemployment climbing back into double digits.

Germany's election looks likely to coincide with a serious political clash over the euro. Countries whose budget deficits or total debt breach the ECB's tight rules face massive billion-euro fines. But stuck in recession, German government revenues are falling just as the unemployment bills starts to soar. A bigger budget deficit therefore looks inevitable.

Will the German government pay the fines, and offend the electorate in election season? Or will Germany defy the ECB and destroy its credibility while simultaneously forcing a crisis with the rest of the eurozone members?

European central bankers are getting so worried about the implications of this clash that various clever schemes are being canvassed to shuffle budgetary and assessment timetables, at least to delay the row until after the German elections in October.

Ironically, the Germans have nobody to blame but themselves. When the ECB's charter was being drafted in the mid-1990s, Germany insisted that the bank be given these powers to fine profligate governments, slash budget deficits and keep the euro strong. Now the euro is weak, and Germany is the economy causing the problems.

France, Germany and Italy, the big three economies that together account for nearly 80 percent of the eurozone's GDP, are lobbying almost desperately for the Greenspan touch, some sharp interest rate cuts to get their stalled economies moving again. By contrast, smaller countries like Ireland and Finland are now in trouble because the ECB did not restrain their overheating economies last year with higher interest rates.

These political tensions help explain (along with Europe's sluggish growth) why the markets have sensibly marked down its value from $1.17 at its birth three years ago to $0.90 today. But then the euro was always much more of a political than an economic project, demanded by France as the price of accepting German re-unification after the fall of the Berlin Wall. The euro was then embraced by the others -- with the exception of the skeptical British, Swedes and Danes -- as a political symbol of Europe's integration.

The politics are now coming back to haunt the new euro, and casting it in a dubious light in the very period when the British and Swedish voters are supposed to be seduced into joining the single currency at the referendums they have been promised (Denmark, the one country where the public was asked whether or not they wanted the euro, said "No.")

So, as usual when feeling defensive about the European project, its defenders hark back to that golden summer of 1914 before the civilization of old Europe committed slow suicide in the trenches of the First World War. Today's EU and its uniting single currency, they say, mean that the fractious European tribes will never revert to their endemic civil wars. Almost certainly they are right, even if the euro looks like a risky way to ensure it.

BRUSSELS: ANALYSIS -- THE BRITISH FACTOR STILL LOOMS OVER THE EURO By CHRIS WHITE

While Brussels and other European capitals greet the arrival of the euro with fireworks and other celebrations at midnight Monday, the British government may be bracing itself for fireworks of a different kind.

This follows the apparent confirmation in the British press this week that Prime Minister Tony Blair is embarking on a "secret" campaign to get the British people to accept both the euro and the European Union.

It's an open secret in Brussels that London had engaged top public relations specialists. The British ambassador to the European Union, Sir Nigel Shinewall, gave a party in the run-up to Christmas for a new, purportedly independent magazine aimed at the British market that sets out to "demystify" the European Union to businessmen.

"There is clearly a game plan to sell the euro to the British and a massive effort is to be launched in the New Year and the European Union is working closely with 10 Downing Street," an EU official told United Press International, referring to the official residence of Tony Blair.

The British government is reported in a largely hostile media to be planning changes to school curriculum's in order to win over young people. Peter Hain, Britain's Europe Minister has been told by Tony Blair to "go out and sell the euro". According to media reports this weekend the British government is planning to spend millions overcoming public opposition.

Unfortunately, Germany's finance minister Hans Eichel has chosen this week to back the creation of a "Europe tax" for the 300 million citizens in the 12 EU member countries in the euro zone -- an endorsement which, observers say, is not calculated to make any easier Blair's PR task of converting a largely euro skeptical British public to the new currency whose notes and coins come into being on Jan 1.

Not that the Europe tax is a new idea. Romani Prodi, the President of the European Commission -- the European Union's executive branch -- has mentioned it before. But Prodi has a reputation for sometimes not getting the facts quite right, much to the irritation of the European Union's 15 member states.

Eichel admitted that it is a difficult issue, because: "It strengthens spending discipline in Brussels if responsibility for expenditure and income is put together," he said.

Why Eichel should have announced his support for a Europe tax at this time is a puzzle. But Prodi's public utterances on a Europe tax now apparently supported by Germany will serve to confirm British fears that rather than Mr. Blair's "Europe of cooperating nation states" they will soon be handing over sovereignty to a European super state.

Derek Thorpe a businessman in the South of England said Saturday: "I and many other business people have joined the League for Independence which aims to recover sovereignty from Brussels not to hand more over. We don't want the euro and we don't want to be swallowed up in a European super-state run from Brussels.

But opponents of British entry may be up against more powerful forces than they realize. Ever since New Labor took power in Britain the country's posture toward Europe has changed from one of hostility to one of dialogue. It is unclear whether Tony Blair is in favor of a federal Europe or not. Currently he says not, and certainly the Labor party he leads has its fair share of opponents to Europe.

A key plank in Blair's relation with Europe has been the establishment of closer relations with Germany, to some extent splitting the Franco-German axis that set EU agendas in the days of Conservative leader Margaret Thatcher.

Recently the German Chancellor Gerhard Schroeder was reportedly urging Britain, the world's fourth largest economy to join the euro. This can be read as a desperate plea in the light of the gloom facing the German economy.

German economic prospects are at their most bleak since unification that led to recession in the early '90s. A survey by the German economic institute shows that business leaders believe that production and sales will fall in 2002, and this conflicts with European Central Bank forecasts that euro zone recovery will begin in early or mid-year.

Underlying Germany's economic prospects is a failure to restructure and end outdated industrial practices. The German government successfully blocked the EU takeover directive, which would have allowed hostile takeovers of German companies.

As a Brussels based economist, who preferred not to be named remarked last week: "You could buy up Germany quite cheap based on market statistics but they have protected themselves from being taken over and that is not good".

Now the country is the engine of the euro zone and German problems are taking some of the shine off the New Year celebrations for the new currency.

There is no secret that the euro is designed to promote what Romano Prodi loves to call "ever closer European Union." The harsh reality as E-Day approaches is that Britain is key to the euro's future and the biggest ever, single currency experiment could fail unless Briton's can be persuaded to take part.

BRUSSELS: FEATURE -- A MATTER OF SIZE By CHRIS WHITE

The stark glass towers of the administrative headquarters of the European Union and the euro-zone did without the traditional Christmas decorative theme this year.

Instead, they were draped with murals depicting and celebrating the arrival of the euro -- the birth of Europe's long-awaited single currency.

As the clock strikes midnight on Monday, a huge party with fireworks in Brussels' Parc Cinquentenaire, created to celebrate Belgium's independence some 200 years ago, will get under way.

Romano Prodi, the president of the European Commission and the EU executive, is in Vienna for a similar unveiling while European Central Bank President Wim Duisenberg made a series of awards to child artists earlier in the day. The fun-loving Dutchman has refused to make public where he will be at midnight.

A media visit to the vaults of the Belgian National Bank during the Christmas break showed specimens of the new coins and notes on full display -- their most striking trait being the stridency of the coloring of the notes, an international alternative to the evergreen U.S. dollar. For instance, the controversial 500-euro note is flamingo pink, the 200 shimmers electric green.

Up until now the $100 bill has been the currency of choice among international drug dealers due to its high value and universal recognition -- and who isn't familiar with the face of patriot, statesman and inventor Benjamin Franklin? The striking pink of the new 500-euro may push the U.S. dollar into second place in the financial underworld.

A Belgian bank employee, who asked not to be named, made the case against the 500-euro note graphically by displaying an ordinary blue plastic tray measuring around 24-inches-by-12-inches and loaded with 500-euro notes. The official challenged the media group to guess how much money it contained. Guesses ranged from 50,000 euro to $100,000 perhaps? "No" was the reply; the tray carried 5 million euro ($4 million).

Quite apart from the unintentional effect of making the international criminal fraternity's financial affairs easier -- a factor that has driven recent European Union decisions to strengthen its unique cross frontier police and judicial cooperation developments -- there is growing fear that the new bigger denominations will also make life for the ordinary Belgian tax dodger much easier.

Now that larger amounts can be transported so much easier into any of the 12-euro zone states without having to convert foreign currency, those Belgians who prefer a cash-led existence will be able to indulge more easily.

Until now, the 10,000-franc (about 250 euro) note had been Belgium's largest denomination. These notes have frequently made the three-hour train trip to the secretive banks of Luxembourg in the tightly clutched briefcases of Belgian business travelers. It is worth noting that Luxembourg, together with Austria, has refused to budge on the ending of its national banking secrecy laws.

The Belgian luxury goods trade has also received a boost in recent days as Belgian franc cash generated in the black market has been laundered into expensive watches and top-of-the range cars.

Ironically, after spending billions over several years promoting public acceptance of the euro, officials here have been taken aback by the public enthusiasm shown for the new currency.

Nearly 4 million coins are already in citizens' hands thanks to the so-called mini-kits sold via post offices and banks. So far, paper euro notes have not been distributed to ordinary consumers, but banks and the larger stores already have large stocks ready to go into circulation Jan. 1, or rather Jan. 2 when the banks and most stores reopen after the New Year's Day holiday.

That enthusiasm, however, is likely to prove a mixed blessing for economic policy makers in the zone. Their earlier concern that the changeover could prompt a shoppers' strike in which consumers stay at home rather than venture into the shops, now looks like an excuse for a mini-sales boom, which could stop the European Central Bank from cutting interest rates again.

Both Wim Duisenberg, the European Central Bank president, and other euro zone central bank chiefs, have made it clear in recent days that the era of falling rates may now be over. At a news conference just prior to Christmas, Belgian National Bank Gov. Guy Quaden stressed that rates were historically low and not an obstacle to financing in the euro zone.

But, on Jan. 3, the ECB Governing Council will meet to assess the impact of the cash arrival on the zone economy. An interest rate change is unlikely.

At the same time, consumers and the central banks will be keeping their eyes open for any unwarranted price hikes riding on the back of the changeover.

In recent days EU Commission officials have been called on to downplay talk of widespread price increases. Both the ECB and the commission have insisted any increases will be "negligible," although Duisenberg let slip to the European Parliament last week that the high inflation of this past spring could have owed something to retailers and wholesalers upping their prices preemptively ahead of the changeover.

Right in the heart of Europe, the price of a cup of cappuccino went up by 20 percent just three months ago. While one member of the bar staff blamed the hike on the euro, other officials insisted this was not the case, but was a "restructuring" of prices to take account of lower subsidies in the restaurant.

Despite the official denials, it may be hard to convince consumers the euro has not pushed prices up and there is a danger of a long-term popular disillusion with the new currency.

In the days ahead, the European Commission's emergency center will be on standby to handle problems and give advice to citizens confounded by the new cash. So far, it looks as though the logistical side of the operation will be a smooth one, but the wider economic and financial implications after it is over now seem to be a bigger headache for EU leaders.

Not least is the continuance of Great Britain's long association with offshore banking. The Channel Islands, long seen by European Revenue services as a loophole, are but one black hole for tax dodgers. They form part of a British chain including the Isle of Man, the British Virgin Islands and the Turks and Caicos Islands, and Bermuda in the Caribbean.

Pressure has been building up in Brussels over recent years to persuade Britain, a member of the European Union but not the euro zone, to close off its havens, but with the Bank of England's Eddie George declaring last week that switching to the euro would damage Britain's prospering economy, it is by no means clear that Britain will agree to do so in the immediate future.

This leaves the euro zone economy dependent largely on Germany, currently suffering serious economic problems of its own.

Germany has told British Prime Minister Tony Blair he must get his country into the euro and all the signs are that Blair is planning an early referendum on the back of a massive campaign to get the British to accept the European Union.

PARIS: INTERVIEW -- DESIGNER BRIDGES THE EURO GAP By ELIZABETH BRYANT

Europeans from Finland to the tip of Italy may not have heard of graphic artist Robert Kalina, but they will soon become very familiar with his work.

Kalina, 46, designed the first euro banknotes that are due to go into circulation throughout the European Union. A veteran currency engraver at the Austrian National Bank, he was chosen for the job in 1996 after winning a Europewide euro-design competition. Creating images for the seven denominations of euro paper money that had universal appeal was a daunting task.

"The most difficult part was to find pictures that would be shared by so many different countries," he said in a telephone interview from Vienna. "I had to find an image that was common all over Europe."

His resulting vision of European integration is a solid one. The euro notes depict the ancient bridges and aqueducts, doors and windows against a green rural background.

"I came to this idea of bridges to symbolize communication among European countries, and between Europe and the rest of the world," Kalina said. "And open gateways and doors to symbolize the future -- the idea of going through them to find a new currency."

More than two years ago, Kalina started work with two assistants on the notes that will become legal tender in 12 EU countries after midnight Monday. The seven notes -- ranging in denominations of 5 euros to 500 euros -- offer a play of color and patterns. Delicate etchings of what appear to be stained glass windows are traced on the 20-euro notes; a highly ornate arch dominates the 100-euro bill. Computerized designs of bridges and aqueducts appear on other bills.

The images have not pleased everybody. Some complain they are bland. Others are distraught that the European tradition of showing leading European kings, statesmen, and cultural icons has been dropped in favor of anonymous architectural depictions.

And underlying the complaints is the widespread public opposition to losing the cherished national currencies.

"Keep the Franc!" was this spring's rallying cry by the Movement for France, a group backing a referendum on adopting the euro bills.

Kalina takes the censure with a shrug.

"You hear criticism about anything you design," he said. "I did the best I could under the given circumstances."

Some of the designer's images have sparked other controversy. Many people in France, for example, are adamant that the Roman aqueduct on the 5-euro note is a familiar landmark in southern France. EU officials have denied this. They point out that Kalina's instructions were that he could not show recognizable national monuments.

"Score a success for the sly French in sneaking in a design through an Austrian graphic artist that was supposed to represent a 'neutered bridge,'" wrote Peter Kenton, a resident of southern France, and a supporter of the Roman aqueduct theory, in the International Herald Tribune in September.

"Roman aqueducts look like ... aqueducts," Kalina countered. "You cannot change too much. I changed a few details, but it still looks like an aqueduct -- if you know what I mean. The goal was that all Europeans could say this is my bridge. Not just (the people of) a certain country."

Selected when still a Vienna art student to succeed Austria's official money designer, Kalina was for years the only engraver at the Austrian National Bank.

Coping with European sensibilities in what was his first international assignment should be good training for his next one -- designing the new currency for the former Yugoslav republic of Bosnia-Herzegovina. Currently Bosnia's Serbs, Muslims and Croats are circulating their own separate banknotes. Creating a currency that satisfies all three ethnic groups promises to be no easy task.

"It will be the first banknote for all groups," Kalina said of the bills, which he estimates will be launched next year. "I hope they will accept it."

Kalina's euro assignment has brought him media attention -- and a minor place in 21st century history. Reporters call him frequently. But he is focused on the long term.

"Graphic design is usually for things people throw away, for short-life products," he said. "Banknote design is for something people keep."

ROME: NOT ALL ITALIANS ARE READY By ERIC LYMAN

Italians often boast about their ability to get things done at the last moment, but on the eve of the historic changeover to the euro currency, surveys show that a majority of Italians see the country's penchant for delay as a problem.

Levels of preparation between various euro zone countries vary widely, but several recent studies and reports indicate that the changeover could be tougher in Italy than anywhere else.

For example, with hours to go, Italian media reported Monday, computer technicians were still reprogramming automatic teller machines not yet ready for the new euro bills.

Even in the relatively efficient Vatican, which will issue its own version of the euro, will issue temporary coins on Jan 1 because the permanent coins with the face of Pope John Paul II in profile are still being minted.

Public awareness was another problem. In addition to the $36 million European-wide advertising and public relations to educate the public about the European common currency, the Italian government and the Italian Banking Association spent another $34.2 in direct mail, advertising and information distribution campaigns.

Yet a survey by the Rome-based polling firm Opinioni showed that nearly one in five Italians could not yet convert lira to euro. Worse, more than one in 10 residents were not aware that the changeover date had arrived.

"The information has been available for months, but the evidence is that it has so far failed to reach some parts of the population," said Opinioni associate director Silvio Motta, who headed the euro currency survey.

The same Opinioni survey showed that the Italian public -- which took in its stride 11th hour preparations for events such as the 1990 World Cup soccer tournament, the Vatican's Jubilee Year in 2000, or the infamous Y2K, year 2000 computer problem is experiencing anxiety over the currency changeover.

The survey showed that around 40 percent of those aware of the changeover said they'd like another year to prepare for it, and around two thirds said that information and advertising efforts so far had fallen short of ideal.

"I think people didn't worry about the changeover until it drew close, and then they realized that it was such a big change that they needed more time," said Sabina Fusaro, 36, a small business owner who started her company's euro changeover efforts in November.

But not all Italians seem unworried by the changeover. Near Rome, pastry chefs in the village of Ascoli Piceno are using 20,000 eggs and 1,500 pounds of sugar to create a mammoth chocolate 100-euro note that will help herald the changeover. In Rome and Milan, there are plans for giant New Year's eve street parties to bid farewell to the lira, with drinks and food priced in the 50-year-old currency until midnight, at which point the price will switch to euros.

Even before the euro was legal tender it did not fail to grab the attention of Italy's organized crime networks. In the three months before the change, thieves have pulled off at least six heists of the new currency -- including three since mid-December -- worth around $3 million.

In Italy, where it will take a staggering 1,936.27 of the old lire to buy one euro, the old currency will be circulated along side the new until Feb. 28 before fading into the history books.

PARIS: FEATURE - CHURCHMEN CONCERNED THE EURO WILL CUT INTO COLLECTIONS By ELIZABETH BRYANT

"With the euro I want my church to live," reads a flier by a French Christian advertising agency, BD Consultant. And church officials also hope to flourish with the euro.

That, at least, is the message pitched by France's cash-strapped Roman Catholic church, just days before Paris joins 11 other European Union governments in adopting the new euro currency.

As shopkeepers and ordinary citizens brace for the currency changeover, French clergy are scrambling to avert a threatened drop in donations -- and to seize an opportunity.

Church officials fear the euro's Jan. 1 debut may prompt French Catholics to simply substitute their traditional 10-franc offering for very similar one-euro pieces, valued at a third less.

To avoid that confusion -- and a possible revenue drop -- the church has launched a new drive to convince Catholics to donate two euros on Sundays, rather than one.

"If you gave 10 francs, be conscious if you give one euro, you decrease your gift by 30 percent," said Bertrand de Feydeau, economic director for the Paris archdiocese, as he explained the new euro drive.

Alternately, selling a more generous calculus, de Feydeau said -- one that equates 10 francs to two euros -- could deliver a windfall.

Few dispute the need. As church attendance has slumped in recent years, so too have donations. In the case of the Paris archdiocese, yearly donations just barely cover operating expenses, according to a survey published earlier this year by Le Figaro.

The average priest in France makes about 5,000 francs a month -- less than $700.

"French Catholics aren't always aware of the donations necessary to keep the church alive," said Bruno Dardelet, head of the BD ad agency participating in the euro drive, who authored a book on the church's financial problems. "The only thing we can do is to remind people, regularly, that the church has no other resources than what Catholics are giving."

France's Catholic hierarchy isn't the only one fretting. In nearby Ireland, Church officials fear Sunday collections may initially slump by up to 20 percent with the euro's introduction. Once again, the problem centers on simple mathematics: Irish parishioners might simply switch their one-punt donations to a less valuable, one-euro coin.

In France, Catholic parishes launched the two-euro appeal in October, through fliers and church newsletters. Some hired Christian ad agencies. Others relied on local media, and France's Catholic radio and TV stations, to spread the word.

This month, the church added a new drive to collect foreign coins and French francs that will soon disappear from use.

"There are coins coming from everywhere in the world," de Feydeau said. "The West Indies, Thailand, Japan. People brought all what they had at home."

So far, local dioceses have amassed more than 2,000 pounds worth of foreign currency, which will then be converted to euros. The collections are more striking in their weight, church officials say, than their monetary value.

More importantly, they say, the solicitations illustrate a larger effort afoot to make France's Catholic church more businesslike, and franker in its financial dealings.

"Church and money have not gone well together," wrote the French Christian newspaper, La Croix, in a recent article. "Even today, (the church) isn't at ease in addressing the subject."

De Feydeau agrees. "I think the tradition in the French church was to keep very confidential about money and economy," he said. "Now, we try to give more information -- to tell people what we are doing with their money, how we invest in the church, and so on."

Similarly, priests are being encouraged to discuss finances with their parishioners, and to solicit the two-euro donations.

"Very often, I see it is very difficult for priests to speak about money and their needs," de Feydeau said, blaming divinity schools for emphasizing theology and philosophy, but ignoring bread-and-butter basics like balancing accounts.

But Father Marc Lambert, for one, is not convinced.

At Notre Dame de Clignancourt church, in a working-class Paris neighborhood, the 51-year-old priest said he had not talked to his parishioners about the church's euro campaign.

There were more important things -- "like our society, which is egotistical, individualistic, and which has forgotten fundamentals of humanity" -- to talk about, Lambert said.

"People aren't stupid," he added. "Money is part of their life. They know exactly what to do with their money."