How to sanely handle unicode in perl?

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#!/usr/bin/perl

...
print "That line is: ",$line,"\n";
$line =~ s/ö/o/;
print "That line in ascii is: $line\n";

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karoshi:~>LC_CTYPE=de_DE.UTF-8 ./u8demo.pl
I read a line, that is 1 chars long.
...
I read a line, that is 8 chars long.
That line is: \xC3\xB6
That line in ascii is: \xC3\xB6

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karoshi:~>./u8demo.pl
I read a line, that is 1 chars long.
That line is: &#65533;
That line in ascii is: o

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