Every cent helps: euro zone explores scrapping smallest coins

Fri May 17, 2013 9:22am EDT
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By Anders Melin

BRUSSELS (Reuters) - Saving pocket change may not end the euro zone crisis, but the European Commission hopes that scrapping the smallest coins could help penny-pinching governments cut costs.

The European Commission outlined proposals this week for the 17 euro zone countries to scrap their 1 and 2 cent coins, leaving 5-cent pieces as the smallest in circulation.

The Commission says the cost of making the coins has exceeded their face value for the past 11 years, effectively costing member states 1.4 billion euros ($1.8 billion).

More than 45 billion of the 1 and 2 cent coins have been minted since the euro entered circulation in 2002, but many are now buried behind sofas, lost in back pockets or left on the street rather than making their way to cash registers.

While scrapping them all together may appear to make sense, some consumers worry that rounding prices up to the nearest 5 cents will prove inflationary. On the other hand, rounding prices down to the nearest 5 cents might be beneficial.

Evidence from euro zone countries that no longer issue the smallest coins - including Finland and the Netherlands - shows that there is little impact on prices either way.

"People like to be concerned," said Carsten Brzeski, a senior economist at ING in Brussels. "But if you think about the psychology of price, I think you'll rather see a rounding down to 95 cents than an upward adjustment."

While the Commission, the EU's executive, could decide to scrap the 1 and 2 cent coins, depending on what comes out of consultations with member states and discussion with the European Parliament, there are also other options, including changing the content to a cheaper metal.   Continued...

One Euro cent coins are seen after being minted in the Austrian Mint (Muenze Oesterreich) headquarters in Vienna April 23, 2013. REUTERS/Leonhard Foeger