Revalued drachma means little change for tourists or Greeks

Greece's decision to re-value the drachma on Saturday will hardly be noticed by ordinary Greeks or the foreign tourists who swarm to the country's sun-soaked islands - at least not in the short term.

The move is a rare case of a formal currency adjustment that will leave actual exchange rates more or less as they are when banks and currency exchange shops open today.

EU officials in Brussels agreed on Saturday to re-value the drachma's central parity to the euro by 3.5 per cent.

This means that if Greece enters the euro zone as it plans on January 1st, 2001, one euro will be worth 340.75 drachmas.

For Greeks, the revaluation means their pay cheques will eventually be worth more in euros than previously planned.

For tourists, Greece will be a bit more expensive than it was supposed to be, but less costly than it is at the moment.

The reason for this currency conundrum is that the EU did not actually re-value the drachma but re-valued a target exchange rate for the currency.

Saturday's move was a change in plans by Greece and its EU partners, designed to make it easier for Greece to enter the euro zone.

Under an original plan, agreed by the same parties in March 1998, the drachma's central parity to the euro - its expected final exchange rate - should be 353. This was a 14 per cent devaluation.

But since then, with the encouragement of Greece's central bank as it struggled to bring down Greek inflation, the drachma has been worth much more.

On Friday, the market rate was about 331 to the euro.

Rather than see the currency sink from 331 to 353 by the end of the year - a fall that makes interest rate cuts and inflation control difficult - Greece and the EU changed the target to 340.

The result: The drachma's exchange rate today will stay at around 331 but will slowly change to 340.

Greeks avoided a much larger fall and will get more euros.

Tourists will get a break by the end of the year, but not as much as they would have.

Meanwhile, the Greek press welcomed the Saturday revaluation, saying it heralded the start of a new era, increasing the country's chances to join the euro zone in January 2001.

"The end of the drachma and the start of a new era," read the headlines of Sunday's To Vima. "In one day Greeks became richer as their assets are now worth more euros than was the case with the previous rate of 353 drachmas to the euro."