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Corn+Soybean Digest

The Euro Kicks In This Month

This month, the euro begins its trek across 11 European countries in hopes of further cementing the European Union (EU) into a more solid, competitive marketplace.

That, experts claim, could have an effect on U.S. agriculture - some of it good, some bad and much of it too early to tell.

East German farmer Tino Schossler thinks the whole idea of a single European currency - the euro - makes sense. But he's nervous about what it means to him in the short run.

Schossler runs a diversified farm with 400 hectares (988 acres) of cropland (corn, sunflowers, barley, wheat and rye) and 250 hectares (618 acres) of grassland for beef and dairy cattle.

"For me, I'm not much for it (euro). What will the money be worth?" asks Schossler. Starting Jan. 1, 1999, the euro enters the second of three phases where 11 of 15 participating EU countries start using it for non-cash transactions. Euro coins and bank notes officially go into circulation three years later.

U.S. economists like G. Edward Schuh aren't at all optimistic about the euro. Schuh specializes in international economic policy at the University of Minnesota's Humphrey Institute of Public Affairs in Minneapolis.

"For the U.S., it's going to create a lot of uncertainty in trading all kinds of goods and services. And that's never trade promoting," Schuh says.

In addition, he expects a long period of adjustment to get the economies on a common base.

"The biggest threat of the euro is that it could become so successful it would start to take away some of the advantages we have with the U.S. dollar being a main world currency," says David Henneberry, ag economist at Oklahoma State University. "For example, petroleum is generally priced in dollars. But there's potential that it could be priced in euros."

Eventually, he believes, the EU will become a stronger marketing force for U.S. agriculture with the euro.

"I predict that some of the same advantages the EU has will come to the U.S. from NAFTA if we look far enough into the future. It's guaranteed. We're looking 40-50 years out to integrate like the EU, so it will be a long time before we merge our currencies," he says.

In a nutshell, the euro will remove the need to change currencies in cross-border trade within the euro zone, economists say. This will reduce transaction costs and, ultimately, make it cheaper for firms to make payments between countries in the euro zone.

Banks will still charge handling fees. But they won't take an additional bite by buying the currency at one rate and selling it back at another, like they've traditionally done.

Some U.S. economists believe U.S. businesses also are likely to benefit as the European market evolves. With consumers better able to compare the price of goods and services in different countries, competition will increase across the EU, causing prices to fall.

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