No good signal for unity in the EMU

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by Niklot Klüßendorf

August 13, 2013 – It has become something of a tradition during the summertime – the controversial topic of the euro fractions. The pros and cons are repeated over and over again. Most of the time, the intertwined issues of history and mentality are ignored altogether. Admittedly, the trifle amounts that arise in the process of rounding up and rounding down can be debited without the use of cash. That was done for a long period of time in countries with a great inflation, for example in Germany in the 1920s.
Sums of a couple of pfennige continued to be debited until the end of 1922 although the coins were no longer in circulation by that time. Then, during the high inflation of 1923, larger amounts of mark likewise vanished from the markets and even from the accounts – from reasons of practicability. From September onwards, no more 1,000 mark amounts were made out anymore – nor were any transfers of sums below ten millions being executed. It is hardly necessary to conjure up such an extreme crisis that left specific kinds of national touchiness.

Cheap coin material
This is the right place, however, to explain one basic principle of all monetary systems of the world; due to inflation, the small coins seize from circulation one by one and are demonetarized. Afterwards, the denominations at the higher end are supplemented by new values. Given the inflation further continues, the hitherto appreciated higher denominations become too expensive to produce and consequently are manufactured in a cheaper material. The exact number of coins a currency needs is a matter of dispute. Being familiar with systems ranging from four to ten denominations, the euro designers have chosen one comprising eight denominations. Let us take a few simple examples for that process: in Italy prior WWI, a 20 lira piece was a coin with 5.8 g fine gold before it was replaced first by paper money, then by metals that grew cheaper and cheaper until it vanished for good with the euro being introduced. Even when coming as a tip, 20 lira, equaling 1 cent at last, would have been regarded offensive in this country that was used to a higher inflation.
In contrast to the lira with its speed, we know fraction systems with a practiced continuity: the copper pfennige of the German Empire, for example, were valid currency from 1873 to 1942 and the pfennige of the German mark from 1948 to 2002. One side effect of such system is the ‘monetary socialization’ taking place already when a kid puts its first copper coins in the piggy bank. Once the 1 and 2 cent pieces – that have been deemed necessary after the most careful considerations – vanish, the 5 cent pieces will be the next to follow at a later stage, and then the 10 cent pieces. It might become necessary to introduce 5 euro coins in all of Europe. The inevitability of this process, which is going to continue almost indefinitely, cannot be overemphasized. Providing the euro is stable, there is no way to tell how long this is going to take exactly – years, decades or rather centuries. The beginnings, however, are already present in the discussions about the fractions.
The monetary lessons in dealing with money lead to ways of thinking and even ways of paying whose striking national differences cannot be explained without knowing the background. This is evidenced by today’s Europe which includes countries used to inflation where, by tradition, fractions are neglected and are being left on the counter while in other countries small change is meticulously billed and returned.

Too insignificant a phenomenon
Such phenomena of the different ways of monetary thinking were deemed too insignificant in negotiations on currency issues to be considered at all. They are not economically motivated but are sometimes dealt with by ethnologists and psychologists. Surprisingly, the topic was addressed from national economy only recently, at a meeting about state debts held by the Deutsche Bundesbank, hence it starts to sink in commercial circles. In Europe with its variety of velocities, and likewise variety of national learning curves and habits concerning money and currency, a lot of patience is required from all parties.
Abolishing the very small euro fractions already after eleven years would be not a good signal but one that would yield to inflationary developments and sound the bell for the aims of an appreciated and neat single currency to be rejected.