The future of Europe will be decided by tomatoes

David Rennie says that the euro has been a public relations disaster because consumers associate it with the rising price of ordinary goods

Ioannina, Greece

Like a penitent sinner, or an addict entering recovery, the European Union has developed a fondness for confessing it has lost the public’s confidence. Among EU leaders and top Eurocrats, there is much talk of ‘reconnecting with citizens’. To know why you should be sceptical, go to the ancient bazaars of Ioannina and ask shoppers what they think of the euro single currency. In common with consumers across the rest of Greece, indeed across much of Europe, Ioannina residents accuse the single currency of triggering runaway inflation since it was introduced four years ago.

EU leaders worry about excessive public deficits in countries that adopted the euro, and a lack of convergence in national growth rates. In Ioannina shoppers worry about soaring prices for parsley and tomatoes. Local politicians worry that Greek families are running up huge personal debts, as the low interest rates of the eurozone encourage banks to issue credit cards to consumers who have only ever known a cash economy. While the Eurocrats’ minds have been fixed on high ideals of monetary union, their beloved single currency is becoming a public relations disaster.

In the metal-workers’ bazaar of Ioannina, not far from Ali Pasha’s fortress, Lukia Piteni presides over a tiny agricultural ironmongers. Her shop looks as though it has hardly changed since it began selling handmade sheep bells, wool-shears and stout dog collars to local shepherds in 1934. ‘Everyday shopping is much more expensive,’ Mrs Piteni says. Some prices have been tripled, or worse, by the euro. A street away in the tailors’ quarter, she is echoed by Amalia Yiannaki, perched behind her sewing machine stitching new police uniforms. ‘From one day to the next, prices go up,’ Mrs Yiannaki says. ‘Inflation was much lower in the old days. Greeks are extremely angry.’ Her last two sentences contain the challenge now facing Eurocrats.

Mrs Yiannaki is factually wrong when she says that inflation used to be lower in Greece. She is right when she says that Greeks are angry about the euro, and blame it for sky-rocketing prices. In the early 1990s average annual inflation in Greece ran at a whopping 13.8 per cent. Later in the 1990s, as Greece battled to meet the entry requirements for the euro (a process that also included cooking the books to hide chunks of government spending), inflation dropped to below 5 per cent. According to the latest EU data, Greek annual inflation is now running at about 3 per cent.

Since the euro was introduced, citizens of the 12-nation ‘eurozone’ have turned against it. Nearly 60 per cent of eurozone citizens said the euro was good for their country just after it was introduced. In the latest ‘Eurobarometer’ survey to be made public by the European Commission, that number has fallen to 51 per cent, and to 39 per cent among Greeks.

Asked if the euro had caused prices to increase unusually, 95 per cent of Greeks say yes. The figure is 97 per cent in Spain, and the EU average is barely lower: 93 per cent.

In private, such beliefs leave Eurocrats pale with rage. ‘Nonsense,’ snapped one Commission official when asked about Greek complaints of tripled prices. ‘These people must have Alzheimer’s; they’ve forgotten what things cost before.’ The Commission recently published a marginally more tactful leaflet entitled ‘Did the euro cause prices to rise? Perceptions and reality’. It accuses some local businesses of skewing public perceptions of inflation by sneakily hiking the prices of some everyday goods, like haircuts, coffee and drycleaning.

The Commission insists that the overall impact of abuses is minuscule, and involves only certain small, everyday goods. Officials often cite an estimate that abuses added an extra 0.3 per cent to prices in the first year after the euro was introduced. The problem is that ordinary people — as opposed to economists — pay disproportionate attention to the price of exactly those small goods, bought with cash from their pockets.

Last month a Greek consumer research centre calculated that the prices of goods including bread, soft drinks, olive oil and coffee had risen between 20 and 147 per cent since Greece switched to the euro. The sharpest price rises have been in the cheapest goods — a pattern repeated across southern Europe, and especially in countries which had large-denomination currencies and used few coins.

Put crudely, in Greece, where one euro replaced 340 drachma, it is hard for many consumers to get upset about a price increase of a few dozen cents, or a couple of euros. Thus café owners who once charged 600 drachmas for a cup of coffee find it possible to charge four euros (£2.70) for the same cup, because it does not feel more expensive — though that is the same as 1,360 drachmas. In street markets, traders shifted decimal points across, so that a 100drachma bunch of parsley became a oneeuro bunch — a 340 per cent increase.

Constantine Papadopoulos, adviser on European affairs at a large Greek commercial bank, EFG Eurobank, explains how such rises can co-exist with low overall inflation. ‘The things that have gone up sharply are the cheapest items: newspapers, milk or tomatoes. There is a lack of competition in the market, so sellers of certain items can charge more without fear of their rivals taking business away from them. But durable goods have come down dramatically: cars, electronic goods. Air-conditioning units are everywhere now. Those durable things actually dominate a family’s annual budget, but people don’t come home from buying them and say what a bargain they got.’ A common tip used to be 100 drachma the smallest banknote. Now it is considered embarrassing to leave less than two euros, though that is nearly 700 drachma. The governor of the Bank of Greece, Nicholas Garganas, went on television last month, urging viewers not to be ashamed of leaving the equivalent of a 100 drachma tip. That was what he did, Mr Garganas said, adding that inflation was not out of control. His message was somewhat lost, shortly afterwards, under the weight of angry viewers’ calls dubbing him a liar.

Amelia Torres, European Commission spokesman for the single currency, says she has no patience with anyone who carelessly tips with whole euros, including her husband. ‘I refuse to admit that it’s difficult to take small numbers seriously. It’s your money, you should take it seriously.’ The merchants of Ioannina take money seriously. Their narrow lanes of low wooden stalls and shops have been a commercial centre for the Balkans since the Middle Ages. Nineteenth-century British travellers were particular fans, from Edward Lear to the young Benjamin Disraeli. Henry Holland, later physician to Queen Victoria, lost his greatcoat — and nearly his life — to two vast night watchdogs in the bazaar, after misjudging closing time. Lord Byron dawdled in the bazaar after his audience with Ali Pasha, Ioannina’s Albanian tyrant, while his companion John Cam Hobhouse grumbled tiresomely about finding no one to repair his umbrella.

At her agricultural ironmongers, Mrs Piteni has barely raised prices since the changeover to the euro. She draws a clear distinction between the young locals and tourists drinking Greek coffee on the lakeside, and her customers — grizzled, sinewy shepherds who must guard their flocks from wolves, bears and eagles in the high Pindos mountains. ‘Coffee is for tourists and people who want to sit around in a restaurant. Young people think it’s natural to pay that kind of money. Our customers are careful with their money; they bargain. They are not the kind to drink coffee for three euros a cup.’ Ironically, Greeks who are angry at the euro largely blame the Greek government, not Brussels. The EU is still seen as a welcome alternative to corrupt, incompetent local officialdom.

In Italy a minister in the Berlusconi government, Roberto Maroni, caused a storm when he proposed a return to the lira last year. There has been no such talk in Greece, notes Nikos Georgiadis, a fast-rising young MP from the ruling Nea Demokratia party. ‘You won’t find anyone under 70 saying, let’s go back to the drachma. The drachma was very unstable: it was devalued 20 per cent every other year at the beginning of the tourist season, to boost tourism,’ he says.

Mr Georgiadis argues that perceptions of inflation are being whipped up by the Greek media. ‘They keep sending reporters to markets, where they find old ladies saying, “Oh, I can’t afford tomatoes any more.” Well, buying tomatoes in April in Greece is not a very good idea, they’re out of season.’ Voters accuse the young MP of being a liar when he tells them prices for groceries have fallen, overall. ‘I say: “Look guys, look at the figures.” They say: “Figures are figures, we know what our pockets tell us.”’ Mr Georgiadis is more worried that the euro has made Greek banks too willing to extend loans to his constituents. ‘There has been an explosion in consumer credit people have been overdoing it, and they are not very mature about loans. So their disposable income is diminishing.’ Tomatoes and overworked credit cards. This is not grand stuff, not the sort of thing to spark debate among Brussels grandees. But it is what people tell you on the streets, when asked about the euro. Ioannina’s shoppers are angry. Is Brussels listening?

David Rennie is a contributing editor of The Spectator and Europe correspondent of the Daily Telegraph.