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Euro: Symbol of New Europe Could Rival Dollar Eleven nations of the European Union welcomed the arrival of their new common currency, the euro, on January 1, 1999 amid hopes it would soon rival the dollar in economic power. Start Date: 1/10/99 The new European currency, the euro, took effect on January 1, 1999 amid strong hopes that it would spur progress and prosperity in a unified $6.5 trillion European economy that could rival the United States as the world's leading economic superpower. Eleven of the 15 nations of the European Union have adopted the euro as their currency. Four EU nations -- England, Denmark, Sweden and Greece -- have yet to do so. For the eleven participating nations -- Germany, France, Italy, Belgium, the Netherlands, Luxembourg, Finland, Austria, Portugal, Spain and Ireland -- the euro begins not as actual currency but as a system of permanently fixed exchange rates among the various national currencies. Those rates took effect on January 1. Stock, bond and currency markets opened for euro trading on January 4. The euro's opening value was slightly under U.S. $1.17. Euro banknotes won't appear until 2002. Until then, the euro will be a virtual currency. European banks will dispense marks, francs, Spanish pesetas and other paper currencies, but will electronically record financial transactions and balances in euros. EU governments had to cut their budget deficits, debt, inflation rates and long-term interest rates to qualify for participation in the so-called euro zone. Greece did not manage to qualify. Italy raised taxes specifically to bring down national debt and budget deficits enough to qualify, a move that infuriated many Italians. High hopes are pinned on a successful transition to a single European currency, including lower overall prices for the euro zone's 291 million consumers, lower unemployment, and a single Europe-wide stock market. Also, EU finance ministers want the euro to become a reserve currency to rival, or perhaps overtake, the U.S. dollar. "There may come a time in the future when, instead of the dollar being the accepted standard of international currency, it will be the dollar and the euro," President Bill Clinton told a news conference in Detroit on Friday, January 8. Also on Friday, European bankers, traders and finance ministers were able to say that the first week of the new currency had gone remarkably well, with very few glitches in the massive changeover process that commenced at the stroke of midnight on January 1. At week's end, the value of the euro had fallen slightly -- about one cent -- against the dollar. But currency traders expressed strong confidence that the new currency would strengthen against the dollar in the next weeks and months. Investment bank Goldman Sachs advocated buying the euro against the dollar as one of its top ten trades this week, predicting that the euro's value could hit $1.29 by the end of 1999. Other traders predicted more modest gains for the euro. For participating nations, the euro brings that promise of stronger economic performance, but at a price. The European Central Bank, headquartered in Frankfurt, Germany, will play a strong role in the economic affairs of each euro nation. As of January 1, the health of individual economies in the euro zone varied greatly -- Germany was limping along, for example, while Ireland was booming. In the new regime, both boom and bust affect the whole far more than ever before. Whether the euro is the bright symbol of a new Europe or a gimmick that ultimately fails to meet expectations will not be known for perhaps years to come. But for now, at least, its prospects seem good.
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