The euro may have been created to unite Europe, but 10 months after its birth, the currency has split the Continent. Whether angered by a 3 euro cup of coffee in Greece or a 1.50 euro can of soda in Spain, consumers are furious and blame the new currency. The Jan. 1 introduction of euro notes led many merchants to round prices off, which almost always means up. French gourmands saw some meat and dairy prices rise 30 percent. The resulting rifts have pitted livid consumers against shopkeepers, and exposed anew the institutional divide between the north and the poorer south of Europe, where the price-gouging seems most rampant, and painful.
With lower average wages, older populations and more retirees on fixed incomes, southern societies are more vulnerable to so-called Euro-inflation. They’re also less well prepared to fight it. Across southern Europe, more than half the population is self-employed, which means the merchants and shopkeepers among them can set their own prices. Nations like Greece and Portugal lack the watchdog agencies that guard consumers in the north. (The Finns, for example, deployed inspectors earlier this year to help shoppers figure prices and count change in euros.) Writing in the Greek newspaper Eleftherotypia, political columnist Victor Neta complained, “Greek society was found disorganized and weak in the face of the mad rush to capitalism that the European Union brought.”
An equally wide gap has opened between public perception and the view from Brussels, where officials say inflation is only a tenth of a percent above the target rate of 2 percent. Tell that to the Dutch radio station that broadcasts a daily “hall of shame” of price gougers. As early as this spring, German consumers were calling the euro the “teuro”–a play on the German word for expensive. According to a recent consumer-group study, a German businessman pays 48 percent more to get his trousers dry-cleaned and an Irish beer lover is paying about 26 cents more per pint. “Statistics are one thing and reality another,” conceded a German Finance Ministry spokesman. “It would be a bad government if it didn’t react to public opinion.”
Public anger is now most vitriolic in the south, where the minimum wage ranges from 406 euros to 516 euros a month–less than half of that in the north. Not surprising, then, that public rallies and boycotts have appeared mainly in southern nations like Portugal, Greece and Italy. European Central Bank president Willem F. Duisenburg’s response is that the rise in prices is “clearly higher in the eyes of the public than the measured inflation, which encompasses a much larger basket of goods.”
Duisenberg’s basket is filled with cars, washing machines and other big-ticket purchases. Prices for these goods have been restrained by continental competition, ushered in by the euro. Small items like groceries, on the other hand, tend to be local products, and they are largely ignored in ECB inflation figures. Says economist Katinka Barish of the Centre for European Reform, “You might have competition on a Euro-wide basis for cars, but you can’t do that on things like kebabs.”
Perceptions matter. In Italy, lowered consumer confidence has forced the government to halve its growth estimates for 2002 and substantially lower them for 2003. Even Duisenberg has had to admit that “perceived inflation” can lead to demands for higher wages and real inflation. Small wonder, then, that the ECB has tried to downplay price rises. Duisenberg already faces pressure to cut interest rates to spur growth in the EU. The last thing he needs is an outbreak of inflation in the south, which would inspire opposite pressure on rates.
Some analysts argue that speedier reform could unleash competition among small vendors, restraining prices. In the south, authorities are at last taking steps to protect consumers. In Greece, the government recently required fruit and vegetable sellers to give official receipts (vendors plan to strike against that law this week). In response to a widening consumer boycott of price-gouging shops, Italy’s largest trade group has promised that its members will cap prices until January. But just to be safe, Signora Berlusconi, better stock up on pasta.
