Euro unmasks price gaps - pity the Finns

Brussels, Jan 3: A can of Coca-Cola costs more than three times as much in Finland as in Spain, a McDonald’s Big Mac costs about twice as much in Helsinki as in Athens, and a standard French car is cheaper anywhere else in the euro zone.

Now that goods are being priced and paid for in a single currency, the citizens of the dozen countries in the euro zone can easily see just how wildly prices vary around the region.

This so-called price transparency, which took a leap on January 1 with the introduction of euro notes and coins, may give the euro zone’s 300 million citizens plenty to moan about, but economists are not expecting price collapses as a result.

For one thing, the range of factors that determine prices -- such as tax rates, labour costs, transport costs, and the fierceness of competition -- means retailers have ready-made reasons why price differences exist and will persist.

Moreover, consumers are not going to shop across borders for most day-to-day items, reducing the clout they have when it comes to driving prices down.

"There will be a tendency for prices to converge but I don’t know that we are ever going to see an absolute single price," said Jim Murray, director at BEUC, the European consumers’ association.

"Prices depend on a lot of things. Also, while people might come back from abroad grumbling that a Coke is cheaper, they are not going to go to another country to buy a can of Coke."

Then there are national monopolies, which also limit price flexibility.

A Reuters survey of a basket of goods showed that a stamp to send a postcard from one euro zone country to another costs less than 40 euro cents if you are sending it from Ireland, but just over 50 cents if you are in Germany.

"The euro will help people understand there is a big difference in prices," said Mark van der Horst, postal committee chairman at European Express Organisation, an industry association representing international express operators. "It might be justified, but what the consumer will be interested in understanding is what is driving costs."

While consumers have limited power over monopolies and are unlikely to shop abroad for things like milk -- twice as expensive in Italy as in Spain -- they might cross borders for big items, or goods which are easily transported.

For example, the price of a compact disc in the national top 10 ranges from more than 22.50 euros in France to less than 15 euros in Italy.

Such differences were less obvious when prices were expressed in the national currencies that have been replaced by the euro, but are now glaring.

The price of a standard four-door Renault Megane with no extras can vary from just under 12,500 euros in Luxembourg to as much as 21,700 euros in Finland. Differences in the taxes levied at national level go someway to explaining such variations, certainly for cars.

The remaining gaps could start to be ironed out if consumers flock to the euro zone countries where they can buy goods most cheaply or use the Internet to shop around. Central bankers and politicians are hoping this is exactly what will happen as time goes on.

"In the medium term, we strongly expect downward pressure on prices," said Jan Smets, who is in charge of the euro changeover operations at the Belgian central bank.

"And even if the part that the Internet plays in consumption is not so high as to be a general feature of our economy, it is another instrument which allows transparency, communication, and information and should have benefits." (Reuters)