I think we had a good discussion on this on the EBTA group chat - join us! We're a fun group!
So, here's my take on this, based on my travels to Europe and beyond. If you have a bank that will sell you Euros or British Pounds at a competitive rate, then I think that's a good start for a bit of seed money. There are times where ATMs are unavailable, banks close on Sundays and holidays (and we are in Madeira on Sunday - and I don't expect any banks open to cash Euro TC), or credit cards aren't taken. So, a little cash would be very beneficial to have. Oddly enough, I say this because I've been to cities where multiple ATMs I've attempted to use have been depleted due to a long holiday weekend - in countries like Canada, US, UK, Turkey, and Germany.
Competitive is a bit of a sticky quandary. A decent bank will charge about a 2-5% premium over interbank exchange rates to their customers for foreign currency. Banks usually won't charge a fee, but their exchange rate is likely higher than the interbank rate. Check out the EUR-USD and GBP-USD exchange rates and compare them to what your bank (or AAA) is selling currency for at a site like Yahoo! Finance -
http://finance.yahoo.com/. I wouldn't buy thousands of Euros, but if a group of 4+ are going, a few hundred Euro each wouldn't be a break in the bank if you did this option, especially if you have a credit card that charges higher rates.
Speaking of credit cards and whatnot, since rates will likely fluctuate while we're there (and if you're staying longer in Europe or doing the B2B), you want to consider things like ATMs or credit cards for a majority of your transactions. I have one credit card from the days where I did a large amount of travel between the US/Canada/UK that does not add a surcharge, and I get charged about 0.25% on top of the interbank rate for my foreign transaction charges (it's allegedly 0%, but with fluctuations and whatnot, it's a penny here or there). Here's a good site that tells you about some cards, although I would suggest checking with your financial establishment regarding credit card and/or debit card fees to avoid any surprises...
http://www.flyerguide.com/wiki/index.php/Credit/Debit/ATM_Cards_and_Foreign_Exchange
Oh...and if you do decide to use your credit/debit/charge card overseas, let your financial institution know your travel dates and countries you'll be visiting. The last thing you want is some account freeze because they're doing due diligence in ensuring that $300 charge in Cadiz is legit (or not)...
While credit cards can be convenient, some surcharges can really add expenses unnecessarily. However, the same can be said about using Gift Cards/Travelers Cheques/"Disposable" ATM cards - in terms of hidden surcharges for the use or procurement of these types of payment. You may be paying a higher rate of exchange, some Gift Cards add a 1% (or more) surcharge for overseas use, the list is endless. Some GC are only good in the US, so make sure that there's no restrictions if you do go this route, and that you are allowed to make PIN based transactions - that includes ATM withdrawals if you need them!
For me, the use of a good credit card, and a backup card is crucial. I bring my bank's ATM card to use in countries that allow for inexpensive ATM use (Bank of America is part of the "Global ATM Alliance" -
http://en.wikipedia.org/wiki/Global_ATM_Alliance), so that I can have cash on hand. I have a small amount of currency as well that I bring from home, for everything from train tickets to a soda that I may need before I even see an ATM.
Two of my traveling companions each have a card on my credit card account, and they're also bringing their primary bank ATM, a backup credit card, as well as a small amount of Euro. Less clutter, less hassle, and less to worry about, IMHO.
-Steve