Euro Entrance Gift: Inflation

Currency reform: Back in Cold War times that phrase always sent a cold shiver of fear down the spines of those living in the Communist Bloc. What seemed so reasonable in the government announcements – hey, too many zeroes have accumulated on the currency through inflation, let’s simplify things by knocking some of them off all prices! – all too often turned out to conceal hidden measures designed to punish earners of “black” wages (by forcing them to go to official offices to exchange the cash hoard they were holding that was about to become worthless) or even simply eliminate large swathes of purchasing power from the economy (e.g. by declaring notes of certain denomination to be no longer valid).

Citizens of what was then known as the “Free World” have by-and-large been spared such abuses. Indeed, here in the Eurozone we have the common European currency, a medium of exchange not subject to the whims of any one national government. What’s more, it was adopted on 1 January by yet another EU member-state, Estonia. Yet that was recognized by most observers as somewhat of a bittersweet occasion; taking up the euro does say important things about the extent of that country’s European integration, yet the sovereign debt financial crisis with which the EU has struggled for a little over a year has revealed several cogent reasons for a country to regret ever giving up its own national currency.

But I’m not out to talk about any of those here. Rather, let’s get back to the “currency reform” scam: it’s the damndest thing how prices seem to rise whenever a country adopts the euro! You see, all prices, wages, etc. have to be converted then by a fixed conversion-ratio – for example, it was 2.20371 for the Dutch guilder – and usually the new price that results is not a very round number. No, much better to make it so – and do you think that merchants then round it upwards or downwards?

Any of you out there over the age of twelve knows the answer quite well – strange, isn’t it, how wages and bank-account totals don’t benefit from a similar rounding? – and so the result inevitably is an otherwise uncalled-for bit of inflation. That’s what made the Germans nickname their new currency the Teuro (teuer is “expensive” in German); on a local note, I can remember how Amsterdam bars, in particular, raised their prices under the quite shameful assumption that their customers were not capable of doing elementary division with a calculator.*

Naturally, then, the same thing has come to Estonia, as we see in a pieces from the Polish national daily Gazeta Wyborcza: Inflation in Estonia highest for two years. Specifically, December’s inflation rate was 5.7% higher than it was in December, 2009. (And how much was that? Annoyingly, the article prefers to use differential rather than absolute inflation rates.) We do know that inflation was high there throughout the last part of the year, as last month’s rate was also only 0.5% higher than last November’s. The main commodities driving this are listed as mainly foodstuffs and non-alcoholic beverages. (Can we hope, then, that the owners of Estonian drinking establishments actually restrained themselves?)

Anyway: Welcome to the club!

*Interestingly, grocery-store prices were mainly converted in a straightforward manner – mainly because Dutch consumer-rights organizations promised to watch them like a hawk!

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