Euro Impact on the East European Countries and Banks
Below is a MRR and PLR article in category Finance -> subcategory Other.
The Euro's Impact on Eastern European Countries and Banks
Overview
The introduction of the euro is set to transform lives not only in Western Europe but also in Eastern Europe and former Soviet Union regions. The German mark, widely circulated and used for transactions in these areas, will be phased out with the euro's arrival. This shift, part of a three-part series on the common currency, explores the effects outside the 12-nation euro-zone.
The Reach of the German Mark
According to the German Bundesbank, over a third of German marks circulate outside Germany, predominantly in Eastern Europe and the former Soviet Union. The mark's stability and the influence of German employment opportunities for Eastern European workers have cemented its role as a second currency beyond Germany's borders. In regions like Montenegro and Kosovo, the mark is legal tender, while other countries have tied their currencies to it through currency boards. Bosnia, for example, uses the "convertible mark," maintaining a one-to-one parity with the German mark.
Transition to the Euro
Come January 1, 2002, more than 250 million Western Europeans will begin exchanging their national currencies for the euro. During January and February, the older currencies will coexist with the euro, after which they will be phased out. Though these currencies won't become worthless overnight?"central banks will continue to exchange them for euros for years?"currencies like the mark will effectively vanish.
Adjustments for Eastern Europe
Hans-Werner Sinn from Germany's Ifo economic research institute anticipates that Eastern Europeans will need to swap their marks for euros, similar to Western Europeans. The exchange is expected to be completed by the end of February.
Antti Heinonen, the European Central Bank's director of banknotes, reassures that the transition should pose minimal challenges for Eastern Europeans. However, the primary task will be altering perceptions, as people adjust to the euro replacing the familiar mark in their day-to-day lives and savings.
This significant change will require Eastern Europe to adapt both financially and psychologically, as the euro seeks to fill the role that the German mark has long played in the region.
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