The New York Times

September 13, 2002

When in Doubt, Europeans Blame Their Currency


FRANKFURT, Sept. 12 Emmanuele Piccari marched in front of the Italian Parliament this afternoon to protest rising prices for everyday products, increases that he believes are a result of the introduction of the euro in January. But his actions were more rebellious than his words.

"I didn't buy anything," said Mr. Piccari, who is an office worker in Rome. "Not even a coffee or a cappuccino."

Shoppers in Italy staged a nationwide strike today against merchants, who many consumers say have exploited the transition to a common European currency by marking up the price of everything from pasta to haircuts. Consumer groups in Greece called on shoppers there to refrain from buying fruit and vegetables next week.

These are the latest ripples in a wave of anger that has swept across the Continent since euro notes and coins became legal tender in 12 European countries in January, replacing lire, marks, francs and so on.

That so much anger persists nine months later, in the face of statistics that show Europe has relatively low inflation, has left officials at the European Central Bank a bit flummoxed. They fear that the inflation-mongering euro could become a sort of urban legend, stubbornly persisting in public perception regardless of facts that contradict it.

"The effects of the changeover are over," Wim Duisenberg, president of the bank, told reporters today. "It's crucial that this perceived rate of inflation not get entrenched in people's mind-set."

Mr. Duisenberg said there had been a one-time jump in the prices of some things like cups of coffee or meals in restaurants, because merchants converting their old national-currency prices to euros tended to round them upward. He said people have mistakenly inferred from these isolated cases that inflation is rampant.

"It's not against the euro," Mr. Duisenberg said of the outcry, "but the euro is perhaps the scapegoat."

Certainly, blaming the euro has become a political sport throughout Europe. In an interview last week with the Milan newspaper Corriere della Serra, Italy's prime minister, Silvio Berlusconi, said his mother had complained to him about how the euro was driving up prices.

Mr. Berlusconi, who is also the richest man in Italy, said, "When I have to buy something important, I think twice now."

In fact, economists say, the prices of big-ticket items like cars and kitchen appliances have not risen unusually. Over time, they say, the euro may bring their prices down, by making it easy to compare prices across borders.

It is the little things that have gone up.

Consumer groups have gathered a laundry list of examples. It costs 48 percent more to have a pair of trousers dry-cleaned in Germany than it did last year. A visit to the hairdresser in the Netherlands is 5.7 percent more expensive. A lunch of yogurt, potato chips and tea in Ireland costs 8.7 percent more. A pack of cigarettes in Greece is 6.4 percent higher.

Elken Lindquist, a medical doctor, was picking through peaches at a supermarket in Frankfurt the other day. She used to buy them from a fruit seller, but stopped earlier this year after the price shot up.

"Everything you need for daily life is so expensive," Dr. Lindquist said, noting that she now buys fewer nonessentials like CD's.

Annie Chagnon, a grocer in a prosperous neighborhood in Paris, allows some of her customers to buy provisions on credit. As she has raised prices, more people have started to pile up unpaid balances.

"I think the euro is partly responsible," Ms. Chagnon said. "Everything has gone up. Even lottery tickets have gone up."

Such claims are not backed up by the data compiled by Eurostat, the Luxembourg-based agency that crunches numbers for the European Union. It says inflation in the 12 euro countries is running at 1.9 percent a year, slower than the 2.6 percent rate a year ago.

The European Central Bank decided today to hold its main interest rate steady at 3.25 percent in part, Mr. Duisenberg said, because there did not appear to be a threat of inflation in the euro countries.

Inflation is highest in Ireland, at 4.2 percent, and lowest here in Germany, at 1 percent. Yet Germans have taken to calling the euro the "teuro," a play on the German word for expensive.

The discrepancy in perception, economists say, has to do with the way inflation statistics are calculated. The numbers are a weighted average of the price of goods and services, with the weight determined by the share of household income that goes toward buying each item.

"When we buy things, our feelings are not rationally weighted, according to our spending patterns," said Thomas Mayer, the chief European economist at Deutsche Bank. "We might be outraged by an expensive dinner, but not notice that our rent was converted to euros at the proper rate."

Cultural issues magnify the disparity. In countries like Italy, which had currencies with a high denomination, coins and small bills were viewed as loose change easily left behind when buying a carton of milk.

These habits of mind persist, but now a shopper who leaves behind a one-euro coin is dropping nearly a dollar. Italy's finance minister, Guilio Tremonti, has proposed replacing the euro coin with a note "to increase respect for the currency and stabilize prices."

Consumer advocates in Italy say that in calculating inflation, the government gives too little weight to some things like car insurance, which has risen sharply. Eurostat puts Italian inflation at just 2.4 percent.

Altroconsumo, one of the largest Italian consumer advocacy groups, says the euro has increased the annual household expenses of a family in Rome by 985 euros, or $961. That number itself has undergone inflation in a previous report, Altroconsumo put the number at 626 euros.

Prime Minister Berlusconi has tried to placate Italians by pledging to freeze the prices of electricity, natural gas and postage for three months. Labor unions are pressing the government to increase next year's inflation target, the basis for negotiating wages for millions of workers.

The euro issue has sharply divided consumer groups. Some of the main groups in Greece and Italy refuse to participate in boycotts of merchants. A shoppers' strike planned for today in Portugal was scrapped at the last minute because of opposition from some consumer groups.

"Boycotting shopping penalizes small merchants," said Jorge Morgado, the secretary general of the Portuguese Association for the Defense of Consumers in Lisbon. "Is that just? In my opinion, no."

In Greece, Ekpizo, a consumer group, said the government, not the euro, was to blame for inflation. The state recently raised utility rates, an increase that has flowed through into the prices of groceries and other goods.

The Italian group Altroconsumo said it would set up a toll-free phone number on Saturday giving advice on where to buy groceries, car insurance and cellular phone service at reasonable prices.

"You cannot just strike for one day and solve all the problems," said Luisa Crisigiovanni, a spokeswoman for the group. "We want people to be clever and effective consumers in the market."

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