Missing: 13.3 Billion Deutschmarks

In late 2001, German banks sold Euro Starter Kits—sealed plastic pouches with €10.23 in coins. One of many steps in the arduous process of weaning Germans from their D-Mark. I was in Germany on business at the time and bought a Starter Kit as souvenir. I still have it. It’s in the back of a drawer, next to a D-Mark coin. And that coin is part of a vast phenomenon: 13.3 billion Deutschmarks are still missing ten years after the euro made it into German wallets. 163 D-Mark per capita. But now people see a reason to hang on to them.

While part of it is stashed in the back of drawers or rusty boxes in Germany, a good part appears to be in other countries. Guest workers took their savings home in cash, which their families kept as hard currency. A smart move in a country like Turkey where, after decades of torrid inflation, the government revalued the lira in 2005 at 1,000,000 lira to one “new lira.” Which put an end to multi-million-lira döner sandwiches. And in the Balkans, the Deutschmark was the primary currency in the 1990s. When I was in Sarajevo in 1997, even hotel bills had to be paid in cash Deutschmarks.

For those who squirreled away Deutschmarks, it’s comforting to know that notes can still be exchanged for euros at any of the branches of the Bundesbank. But the numbers are dwindling. In 2010, DEM 180 million were exchanged. In 2011, it was down to DEM 140 million.

Though people might be clinging to their marks, the euro so far has been a solid currency—despite its birth defects. In 1999, €1 bought $1.07. It then zigzagged up to $1.60 in 2008. Even in its crisis-battered condition, it’s at $1.30, up 21% from 1999. Inflation in Germany during the euro decade has been a very moderate 1.6% per year on average, or 17% for the decade—considerably lower than during Germany’s post-reunification years.

Yet German consumers have been grousing about inflation ever since the euro’s introduction. That gap between reported inflation and perceived inflation became such a concern, that the Statistische Bundesamt, which issues the inflation numbers, studied the problem (PDF report). Most prominent among its conclusions: the frequency of a purchase impacts the perception of inflation.

Buying a car for example. In a given year, only one in 20 German households bought a new car. The remaining 95% of households did not experience price changes in new cars. Thus, the price increases didn’t enter into their perception of inflation though they have a significant weight in the basket of goods measured.

Items consumers buy on a daily basis have seen higher inflation. Food, electricity, gasoline, diesel, heating oil—the infamous non-core items—rose by 35% over the decade. Electricity alone was up 66%. Due to their daily presence in people’s lives, they disproportionately impact the perception of inflation.

However, the report confirms a popular suspicion that eating and drinking establishments took advantage of the new euro for the first two years by rounding up. Smaller items—an espresso, for example—could see a jump in price of as much as 100%. Thus, an espresso drinker would perceive a painful level of inflation though espresso has an insignificant weight in the basket of goods. Price increases in restaurants leveled off after the initial spike, and for the decade as a whole, they amounted to only 18%.

For the first and perhaps only decade of its life, the euro has been a good currency in the German sense—though it might be wreaking havoc in other countries. And the billions of missing Deutschmarks? People might be hanging on to them more tightly than ever: even Beatrice Weder di Mauro, member of Germany’s Council of Economic Experts, confirmed that a breakup of the euro in 2012 “cannot be excluded.” Oops.

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