Was the currency engineering right?

Nobody can accuse the Italians of not doing anything about a national problem... at least they set up a nationally followed television programme about it! That in fact was the rationale behind their current, very popular RAI Uno daily TV 1 p.m. programme Occhio alla spesa (Watch your shopping bill).

The whole thing got off in the wake of nation-wide consumer unrest soon after January 2002, when prices started rising in an uncontrolled manner as businessmen in practically all sectors ran amok soon after the introduction of euro notes and coins, indulging not only in arbitrary rounding up of equivalents from the old lira, but even taking the opportunity for some windfall-level profiteering.

Even if in not so many words, yesterday week's edition of Occhio alla spesa had the programme presenter, and studio audience, asking a very basic question: Did "they" get it right?

Who is "they"? "They" was the EU's and the ECB's, monetary "engineers" who thought up the present denominational subdivisions for euro notes and coins, viz. one, two, five, ten, 20 and 50 euro cents, and one and two euros for coins, and five, ten, 20, 50, 100, 200 and 500 euros for banknotes.

In the wake of how consumer psychology has actually turned out to operate (we are of course now in the happy phase where we can speak a posteriori!) in the handling of the euro coinage, much was made in this programme of the current initiative at the Brussels level (being strongly pushed by Finland, Belgium, Holland, and Italy) to eliminate some of the present coinage.

If the present initiative goes its whole course it may come to the point of a decision having to be taken by the Council of Ministers - this would fall in the class of decisions to be taken on a qualified majority basis - about total elimination of the lower value euro cent coins, and the introduction of a one euro bank note.

In 2002, former Italian Minister of Finance Giulio Tremonti had in fact already launched both a national debate and an initiative at EU level about this euro denominational values problem. But whereas Greece and Austria had supported the initiative, several governments did not.

On Occhio alla spesa, Virgilio Dastoli, who is the head of the EU representative office in Italy, agreed that Italian businessmen had been allowed to run riot by rounding up not down, and this in some cases in the most obscene of manners. The classic example which made it to the case-study textbooks was that of the beach umbrella hirers who previously charged 1,000 lire for an hour's hiring, and then upped it to one euro, i.e. to no less than 1,936 lire (a massive 94 per cent daylight robbery!) when the new notes and coins were introduced.

Dastoli unashamedly admitted that in ten out of the present 12 Eurozone countries rounding off was generally made by businessmen upwards and not downwards. They will always do it, everywhere, if governments do not seriously hammer them, he opined.

Greece is also greatly concerned with the problem, and together with the above-mentioned member states is teaming up in an effort to have a €1 note introduced. Participants on the programme observed that when the Lit. 1,000 note had first been introduced, that had not only spelt finis for the old centesimi coinage, but it also heralded another spell of inflation. To eliminate the present €1 coin would do the same, they said.

Is it only consumers who have suffered from the present euro-denominational enginnering structure? Not really. One other important loser has been the Catholic Church, since it has seen its revenue from church donations go down. One woman on the programme (God bless her for her fairness towards Holy Mother Church!) said that when the currency change took place she started placing a €1 coin in the donation basket instead of the former 1,000 lire note. But Dastoli immediately countered that again, most studies have shown that indeed it is only the minority of churchgoers who have done this, and churches' income from Mass donations are down heavily everywhere.

This writer vividly remembers an analogous situation in Britain when decimalisation of sterling was carried out. But the parish priest at London's Brompton Oratory had then unashamedly pointed this out to his parishioners the Sunday after, insisting during his homily that that "the correct 'conversion sound' which I now expect to hear during Mass as your coins are put into the salver must now be chink-chink and not just one chink as it was up to last Sunday!"

Re-engineering the present euro denominations structure may yet come about, but it will not be an easy thing to carry out. The technical problems which it will bring with it are enormous, and costly too. Notes (paper) have a handling usage life which is of course much shorter than that of coinage, say one to two years.

The actual metal value in coinage is in most cases higher than the nominal value of that coinage. Add to that ATM and vending machine problems, the fact that over the next ten years the new member states will be adopting the currency, and also what one could call educational or communication issues, e.g. basic school textbooks and so on.

All of which suggests that there is a clash between the national economy thrust bias towards the euro coinage in its present structure, and the family economy thrust bias. While the former tends towards retention of coin structures as originally introduced, the latter tends to "kill" lower coinage out of usage as it (willingly or unwillingly) succumbs to the imposed pricing scenario in the country - who really killed the mils in Malta, was it former Finance Minister George Bonello Du Puis or the uncontrolled business sector? - and the way the cent coin has practically as much as already totally vanished in Italy and elsewhere is proof of this reality.

So, readers may ask, what was Occhio alla spesa's advice to customers in the current situation? The programme presenter said basically two things. His first counsel was that customers should "fight, fight, fight" price rises by all means at their disposal. His second was perhaps more realistic and practical: make sure you always have one of those purses with many compartments where, at least, you have separate places for: the lower copper euro coins, the higher value euro coins, the lower value euro notes, and the higher value euro notes.

That at least equips one with, yes, even the awkward 'lower' coins whenever these are needed and does not provide ready excuses for collaborative (to the businessmen that is!) elimination of such lower value coin into first the karus, eventually extinction, and in the process inflationary price rises.

Mr Consiglio lectures in the Department of Banking & Finance of the University of Malta.