Coming Soon: The Euro Era

Now, many of those skeptics in places such as the United States and United Kingdom are worried it may just succeed, at their expense.

The euro - the single currency which will unite the economies of 11 European economies on Jan. 1 - is being touted as the biggest thing to happen to the world economy since the end of World War II.

Until now, the dollar has been the spoilt favorite of investors and vendors everywhere. But soon the euro will be flirting for those affections with all its worth. And it will have something worth flaunting: the world's second biggest economy.

Meanwhile, a clutch of unlikely characters will be converging at the currency's birth. There's a controversial comic strip action hero called Captain Euro; there's a euro stork flapping on the website europa.eu.int@eurobirth, and there's a troop of children waiting to release 3,000 blue balloons in Brussels. There are also a legion of civil servants and politicians across Europe working round the clock to make sure everything goes right when champagne corks erupt.

Safe to say things will be hectic. To help, CBS MarketWatch has put together a Euro Guide which provides a snapshot of what it's all about and what happens once the currency is launched. Following are some of the most commonly asked questions.

Q: Who's in?
A: Eleven of the 15 European Union members: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain.

Q: Who's out, and what are the chances of joining later?
A: The four EU members who have opted out are the United Kingdom, Sweden, Denmark, and Greece, with Greece the only country which has set itself the objective of joining in 2001 -- the next possible entry date. The other three still have strong domestic and political opposition.

Q: What exactly happens from the stroke of midnight Jan. 1?
A: From that point on, there will be one bilateral currency rate for the 11 EU countries in question. That means other "out" currencies such the pound and dollar will also have a "fixed in stone" rate against the euro. The banking industry and central banks will conduct all transactions in the euro and capital markets of the participating states will convert to the new currency on Monday, Jan. 4.

Q: Will domestic currencies disappear overnight?
A: No, this is going to take a lot of time. In fact, euro coins and notes won't even be in circulation until Jan. 1, 2002. While consumers won't be able to do cash euro transactions, they will be able to use euro credit cards or euro check books. The hitch, though, is that clearing bank systems across Euope aren't yet linked up.

Meanwhile, there will be an interim period from Jan. 1 through Dec. 31, 2001, when all transactions can be done either in euro or in national currencies. From Jan. 1, 2002, all bank accounts, salaries, and invoices must be done in the euro. But it won't be simple. Shops will have to price products in both euros and old currencies for a while in 2002 and operate two tills.

Q: What are some of the benefits?
A: One of the single biggest immediate attractions is the elimination of currency risk, which can be very costly to a company's earnings when a currency moves against it. A single currency will also offer greater price transparency - meaning it will become easier to see how much it costs to buy a BMW in say Germany compared to, say, Italy. Europe's equity and bond markets also stand to get massive liquidity injections as it becomes easier to buy and sell cross-border.

Q: What's the criteria for signing up?
A: The criteria was set in stone after the Maastricht Treaty was signed in 1992 by all the countries of the European Union, excluding Britain and Denmark. That's effectively when the euro-idea was launched. Single-euro countries must stick to the following key points:

• Inflation must be low, roughly between 2 percent and 3 percent.
  
• The public debt of a country must not be more than 60 percent of that country's Gross Domestic Product.
  
• The government borrowing deficit of each country must not be more than 3 percent of that country's GDP.

Q: Could it all blow up?
A: Anything is possible. Some say it's near-impossible for 11 different countries to converge economically and politically without something going wrong. Certainly, there are still some big issues to be ironed out - such as the controversial EU tax harmonization plan which countries such as the U.K. strongly oppose. Some insist that without tax harmony, Europe can't have monetary and fiscal harmony. Then there are the "structural" problems of high unemployment - a big problem still in much of Europe - and one which could generate big political headaches.

Written By Suzanne Miller