Euro OK: Common Currency Enjoys Smooth Launch, but Questions Remain

Week of January 7, 2002
Snapshot from the Field

European Central Bank President Willem Duisenberg (pictured above) called the euro launch "a tremendous success" that was "one of the major, if not the major, step forward in the history of European integration."

Euro OK:

Common Currency Enjoys Smooth Launch, but Questions Remain

By JACK LYNE, Site Selection Executive Editor of Interactive Publishing

THE EURO ZONE -- I'm OK, euro OK?
That seems largely the case, at least thus far, for the European common currency that was introduced on Jan. 1.
And that's saying something. The euro launch's has been unprecedented in scale, taking in nearly 300 million people in a 12-nation area that generates almost 20 percent of the world's economic output. Added to that is the "big bang" methodology employed to introduce the common currency: a whopping 15 billion euro bank notes and 52 billion coins - 646 billion euros (US$578.3 billion) in all - have been distributed to banks and businesses over a swath of Europe that extends from Ireland to Greece, from Finland's Arctic edge to Spain's Canary Isles.
However massive, though, the currency changeover's initial stage seems to have come off with remarkable calm. "Euro rage," a much-discussed fear in the run-up to Jan. 1, has largely failed to materialize.
Willem Duisenberg, president of the Frankfurt-based European Central Bank (www.ecb.int), called the launch "a tremendous success."
"It is because Europeans have seized the opportunity to play an active part in this changeover that we can already pronounce this unprecedented move a tremendous success," Duisenberg told a press conference last week.
"On 1 Jan. at zero hour, the introduction of euro bank notes and coins marked not only the completion of economic and monetary union . . . but one of the major, if not the major, step forward in the history of European integration," Duisenberg continued. "I am convinced that 1 Jan., 2002, will appear in the history books in all our countries and beyond as the start of a new era in Europe."
The euro could also signal something of a new era for European real estate. Unresolved industry issues, however, remain.

Real Estate Impact Preceded Jan. 1

The euro's impact on real estate location strategies, however, was already evident before Jan. 1. With the scenario for the future fairly well defined, some site decisions were made in the three-year run-up to the common currency's becoming a physical reality.
Some firms, for example, with reduced concerns over currency and political differences, cost-effectively centralized European logistical operations within the euro zone. Other facilities picked euro zone sites to avail themselves of advantages like simplification of accounting and finances.
Meanwhile, some firms with operations located in nations that passed on phase I of the euro have voiced concerns as Jan. 1 approached.
Toyota, for example, decided several years ago to site a $1.6 billion, 2,000-job plant within the euro zone - in Valenciennes in northern France - after it decided that the UK would likely sit out phase I of euro implementation. (The UK did just that, keeping its strong pound outside the European Monetary Union (EMU). Two other members of the European Union (europa.eu.int), Denmark and Sweden, haven't yet joined the EMU.)

Real Estate Pricing Not Yet Transparent

Significant questions remain after Jan. 1, however, vis-à-vis the euro's impact on real estate. One of those questions revolves around the much-praised pricing transparency that the common currency is bringing to the euro zone.
In some areas, the impact of that transparency is clear. With exchange rates practically eliminated, European retail operations, for example, have had to adjust to the realities of cross-border comparison shopping.
Comparison shopping for baby buggies, however, remains a more transparent process than comparison pricing European properties. Real estate prices are quoted in different fashion in different euro zone nations. Some countries, for example, quote end user costs in euros per square meter per month. Other nations quote those costs in euros per square meter per year.
Many in the real estate industry are pushing for a pricing standard that will eliminate that haziness. Once true transparency arrives, real estate expenditures will become a smaller percentage of overall costs, they predict.
Another real estate question revolves around how current rental rates will be converted from national currencies to the euro. In many cases, perfect conversions don't compute. And that is leaving landlords to their own discretion in rounding figures up or down.
Rounding up could, in one fell swoop, appreciably up occupancy costs. On the other hand, weak markets in many parts of the euro zone will pressure many landlords to round down rent conversions. Jones Lang LaSalle, for example, is predicting that the overall impact of converting rents to euros will decrease rents within the euro zone by an average of 0.9 percent.

French banking and postal strikes planned for the day of the euro's introduction fizzled. "One can not take the euro hostage," said French Minister for Economy, Finances and Industry Minister Laurent Fabius (pictured above).

Some Glitches Surface

It remains to be seen how those real estate issues will shake out in the new euro era. On the other hand, the early glitches in the euro's introduction look like the minor type that will likely be rapidly smoothed over.
Among those glitches was a shutdown of Austria's automatic teller machine (ATM) network on Jan. 1.
Some 80 percent of the euro zone's 200,000 ATMs were successfully dispensing euros on Jan. 1, according to Pedro Solbes, EU commissioner for Monetary Affairs. Those ATMs did a landslide business on Jan. 1, beginning shortly after midnight. Heavy ATM withdrawal volume, however, overwhelmed an Austrian central computer, knocking out the nation's system from about 4:15 p.m. to 6:00 p.m. The Austrian ATM system has since functioned normally.
The euro launch was also marked by several strikes, though they had little impact. Seeking better benefits, postal and bank unions in France and Italy planned strikes for Jan. 1. Their efforts, however, largely fizzled. The strike by French bank workers, considered the most serious potential disruption, "was not at all followed," said Laurent Fabius, French Minister for Economy, Finances and Industry. "Everyone has problems, but one cannot take the euro hostage."
All the euro zone strikes were rapidly abandoned. The labor actions' lack of support was reflected in the French strike call at post offices, which also provide banking services. The initiative drew the support of only 5 percent of postal workers.

Neary's, Dublin
Neary's Bar in Dublin (pictured above) was among the businesses frustrated with the complexities of handling two currencies. Eventually, the bar opted to accept only euros.

Dual Currencies Create Long Lines

Long lines also materialized at many tollbooths and retail outlets. That was not altogether surprising, since all of the national currencies that will be abandoned won't expire until Feb. 28.
In addition, some businesses were frustrated with the intricacies of handling two currencies. More than a few decided to accept only one currency. Neary's Bar in Dublin, for example, opted to accept only euros.
"We're a small bar, and we don't have room to be building up bags of coins we can't use ourselves," Neary's Manager John Hanrahan told the Associated Press.
One customer, however, was notably miffed after Neary's refused to accept his Irish punt. Finally, the man stomped out of the bar in a huff.
"I nearly gave the guy the cup for nothing, but he left before I could make the offer," Hanrahan said.

Editor's note: For a look at how the euro and other issues are affecting European location patterns, see Site Selection's annual wrap-up of European corporate location activity in the July 2002 issue. For a look at our 2000 review, see "UK Remains No. 1 with Foreign Investors" in the July 2001 issue.

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