Euro-zone Tag-alongs

Any number of east European EU applicants would love to join the euro zone to ease their way into the common market.

But until now and in the foreseeable future, there’s just no way.

So how is it that Kosovo and Montenegro, two of the continent's chronically fledgling states – Yugoslav provinces, rather – have smuggled themselves into the exclusive club?

By hiding behind the German mark, that’s how.

Tag-alongs

Kosovo, the breakaway province with a burly independent streak and a penchant for inter-ethnic fighting, has about 2 million residents and a barely-controlled cash economy.

It also has the mark, since under United Nations leadership it adopted Germany's currency as its own in September 1999. Though Kosovo did not give up the Yugoslav dinar entirely, currency reform was one more way of snubbing Serbia after a bitter war.

Montenegro, Serbia’s restless partner in the federal republic of Yugoslavia, is a bit smaller with 600,000 residents. It has an independent streak, too, and exerted it in November 1999 by ditching the Yugoslav dinar and adopting the mark.

Now that the mark is phasing out in Germany – no longer legal tender after Febuary 28, 2000 – it’s got to go in Kosovo and Montenegro, too.

Many people in both provinces consider themselves mighty lucky.

"It’s a big step" toward joining the EU, says Ejup Qerimi, director of the Euro Info Correspondence Centre in Kosovo, part of the Kosovo Chamber of Commerce.

Businesses are thrilled by the prospect of doing business with Europe’s richest countries – apart from the United Kingdom – without any currency complications.

Around the rules

Yet it’s in places like Kosovo and Montenegro that the big changeover to the euro could go wrong.

Whereas proper members of the euro zone have been preparing for years, setting financial systems in place, these provinces have not. If fact, they do not meet the most basic requirements for euro zone membership.

A simple guide for countries seeking to join the euro zone would look like this:

First, you must be a European Union member state. If you are not, you must apply to join, reform all your legislation accordingly and win acceptance.

Once in the EU, you must manage your national accounts in accordance with strict criteria, without forgoing continental standards of social welfare.

When you are fiscally fit, you must take a formal political decision to adopt the new currency.

And then, still, you must ask the EU’s permission.

No easy feat. Kosovo and Montenegro have done nothing of the sort.

Getting ready

Their preparation, like their economies, is more rudimentary.

Because Kosovars and Montenegrins rely much more heavily on cash, for payments and savings, banking institutions are unsure how much currency is in circulation. They have had to estimate, hoping to buy just the right about of euros, lest they miss the mark and trigger liquidity crises.

That’s right. They have to buy euros. Unlike proper members of the euro zone, they have no right to print and mint.

Germany, already accustomed to selling the mark, has agreed to sell the euro, too. Kosovo is also negotiating a deal with Austria’s central bank.

The mass importation of euros notes and coins will be one of the biggest cash moving operations ever.

"Logistics, transport and security" will be massively expensive, says Qerimi, "and we are paying, the population. We have to."

This means that transfers into euros will be both necessary for everyone and costly. Everyone in Kosovo, for example, is permitted to free exchange up to DM 1,000. But from DM 1,000 to DM 10,000, exchange will be taxed by 2 percent, to boost revenue to banking authority.

DM dominance

The euro changeover will have to be thorough, if it is to work. Deutschmarks dominate the Kosovan and Montenegrin economies. Even staff at US army camps in Kosovo get paid in marks.

But since many people are wary of financial institutions – banks have been known to crash – they prefer to save in cash.

In countries like Germany, most exchange has already been accomplished quietly and hassle-free for individuals, as banks convert their systems. In Kosovo and Montenegro, much of it will be done hand-to-hand, over the counter.

Measured in time and money, this will be an expensive endeavour.