Is it time to cash in the euro coppers?

By Anna McLauchlin

Date: 30/09/04

FINLAND, the Netherlands and Belgium have already done it. Austria's finance minister and Germany's central bank are thinking about it.

Is the eurozone set to ditch its fiddly little coins?

The pressure began to build after Belgian Finance Minister Didier Reynders announced on 9 September that the Belgian central bank would stop producing one- and two-cent coins from the end of 2005, although, in fact, the government has only established a "round table" to consider the coins' future.

At the beginning of the month the Dutch began rounding their till prices to the nearest five cents, following in the path of the Finns who - having never minted the tiniest coins - began rounding when the euro came into circulation in 2002.

And there have been rumblings at the Bundesbank, where, in August, the bank's head of cash division, Wolfgang Soeffner, said the coins were "on probation" due to the high transport and storage costs. Austria's Finance Minister Karl-Heinz Grasser added fuel to the fire saying that he would be ready to drop the one-cent coin.

Governments argue that the small denominations are much too expensive to produce given their small monetary value. Consumers irritated by the coins stash them at home, forcing central banks to mint even more.

A European Commission poll showed that a majority of consumers in Belgium, Italy, Luxembourg, the Netherlands, Ireland and Austria thought that there were too many euro denominations in circulation.

But a more recent opinion poll, carried out by Germany-based Forsa, showed that 54% of the country was against abandoning the coppers despite the Bundesbank's reservations.

Experts say there is unlikely to be a united move to scrap the coins.

"We don't have the impression that many countries are seriously considering it," said one Commission official.

And Dominique Forest, an economist at European consumer federation BEUC, said consumers are not clamouring for such a move.

"The Netherlands had just done away with the smaller guilder coins before the euro came in and the Belgians were more used to notes in their former currency," he explained. "This will not be the case everywhere."

Nevertheless, Economic and Monetary Affairs Commissioner Joaquín Almunia has asked the Dutch presidency to put the issue on the agenda at an upcoming meeting of eurozone ministers, Eurogroup.

"It's a political concern," one EU official told European Voice.

"There is a risk that if you start applying different rules at national level people will start thinking that it's not a single currency. The euro was introduced with effort and it is the Commission's task to see that the single currency remains just that."

But one Almunia aide said that the Commission was reluctant to legislate.

He said: "The best way to proceed is to let the market decide. The existing regulations should be implemented, without modification at national level."

Retailers in some countries, such as Germany, he said, rely on the "psychological" element of pricing, where an item priced at l1.99 appears much cheaper than one at l2. They should be free to decide.

BEUC agrees. "It is way too early to be thinking about changes," warns Forest.

"The introduction of the euro is still fresh in people's minds, as are the fears about retailers pushing up prices when they changed to the euro.

" If consumers are concerned about inflation they may stop spending."

But in the Netherlands, at least, analysts are not expecting a huge change.

"There will be very little impact on inflation," says Elwin de Groot, eurozone analyst at Fortis Bank Netherlands.

"The rounding rule only applies to cash transactions in the retail sector and only at the end of your shopping trip.

"And it can be either rounded up or down, so there really will be minimum impact on prices.

"Any impact will be psychological, but this is not a big issue for people in the Netherlands."

Even if individual countries cease minting one- and two-cent coins, they remain legal tender throughout the EU and retailers in all eurozone countries are obliged to accept them.

A decision to remove the coins from circulation entirely would have to be taken collectively by the Union's finance ministers.

Several Eurozone countries have already stopped producing one- and two-cent coins and others intend to follow as they prove to be unpopular with most European consumers and create high transport and storage costs to producers in relation to their value.