Across the Eurozone, a chorus of 'save the dollar!' is rising
Filed under: Economy
Europeans are freaking out, and the reason might surprise you. Their seven-year-old currency known as the euro has gotten too strong. That's quite a turnabout from the common currency's launch in 2002 when dollar bashing -- and euro boosting -- was as common in the Continent's financial institutions and coffeehouses as cigarettes and strong espresso. Of course, times have changed since then, thanks to two wars, financial meltdowns and subprime loan losses, among other calamities. With the dollar now at a 14-month low -- the euro reached $1.4967 last week -- European governments fear the greenback's slide could threaten the region's still-nascent economic recovery.
"We have to save the soldier dollar," blares the headline in a recent economy column in France's leading daily Le Monde. Columnist Pierre-Antoine Delhommais goes on to explain that if the dollar crashes, "exports would collapse, growth would sink and the unemployment rate would explode." In fact, the euro's nearly 19 percent climb since March already seems to be wreaking havoc with the exports from the Eurozone's 16 member countries. The European statistics office just announced that exports from the region fell 5.8 percent in August compared with July. "It's been a significant issue here," John Whelan, chief executive of the Irish Exporters Association, told DailyFinance.
When the euro rises some 18.6 percent in seven months, it essentially means that prices for goods like Hermès scarves and BMW coupes increase by the same amount for American consumers -- assuming rather crudely of course that the currency effects are fully translated, which is rarely the case. European exporters say a euro-dollar exchange rate above $1.40 is the point when their currency gets too strong, according to Reuters. With the euro now 6.4 percent above that mark, many are undoubtedly feeling the pain.
Of course, Europeans aren't the only ones in a funk about the wimpy dollar (the result of many factors, including rock-bottom U.S. interest rates, which make investors want to park their money somewhere else). Several Asian countries made big purchases of dollars earlier in the month to try to shore up the wilting currency. But the dollar's troubles are felt particularly hard in Europe, as the U.S. and the European Union are each other's main trading partners. In 2007, some €260 billion ($387.87 billion) in E.U. exports crossed the pond, according to the E.U. statistics office.
The Irish Exporters Association's Whelan says many of the 3,000 or so exporters the group represents in the Emerald Isle are less affected by the dollar's wipeout than their counterparts in other Eurozone countries. That's because many are multinationals in high tech, particularly in the life sciences. "Typically, they're not as subject to the maneuvering of the euro because of treasury management," he says, referring to the practice of companies managing their currency exposures.
But Irish exporters that are feeling the pressure are those in the country's so-called indigenous sector, which includes the food, beverage and textile industries that export internationally renowned products. Guinness beer and Irish knit sweaters anyone? "The indigenous sector is where our exporters are having difficulties," says Whelan.
It's not just the euro's strength against that dollar that's crimping demand but also the euro's strength against the pound in the U.K., Ireland's biggest trading partner. The euro has gained 21 percent over the pound in the past year, Whelan says.
The stronger euro also has European tourism officials wondering whether penny-conscious consumers will change their travel plans, particularly if the dollar continues to sag. In Paris, the world's most visited city, tourism officials say they're now finally starting to see a rebound in American travelers after registering 2.6 percent fewer Yanks in the first half of 2009 compared to last year. "What impact is the dollar going to have on this?" asks Paul Roll, director of the Paris Tourism Office. "It would be hard to say."
Roll says nearly 50 percent of the cost of an American's trip to Paris is accounted for in dollars, when you include airline tickets and hotel reservations made through agents. But he admits the economic crisis has already put many Americans on tighter budgets. "The American tourist is spending less and less," he told DailyFinance. One key sign? Americans are downgrading to three-star hotels from four-star hotels. "The good thing is, Paris has a whole range of services and products to offer them."
Of course, that's the same argument European exporters are using. The question is: If the greenback retreats much further and that range of products and services becomes too expensive, will Americans just end up staying home and buying there?
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Reader Comments (Page 1 of 1)
10-20-2009 @ 12:18PM
Jon said...
If our employees in congress, Bush and Obama hadn't spent way more than we can afford as a country, maybe the dollar would still be worth something. Bush spent way too much and now Obama is more than tripling that. Federal legislators who only serve their own interests and a President who has nothing but disdain for this country and our dollar and our jobs can only lead to an ever weaker dollar. We must vote them ALL out and start over with term limits and a balanced budget ammendment to the Constitution.
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10-20-2009 @ 12:27PM
chip elfner said...
Rather than complaining about the exchange rate perhaps Euroland exporters should encourage their governments to adopt fair trade policies compared to the mercantilism currently in effect. Eurozone exporters get VAT credits while US exporters get hit with the VAT that help to fund Euroland social safety nets and healthcare. It amazes me that the US puts up with such bad behavior in the name olf free trade.
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10-20-2009 @ 12:29PM
Alan said...
The only thing that l can say is that l just came back from Italy and visited Rome, Florence and Venice and saw very few American's. What l did see is a lot of Italian (that's right)
tourist's, German's and Asian's.
It was not crowded and we were able to have dinner every night without reservations and they were not full.
There was not one museum that was very busy except maybe the Vatican but that could have been controlled.
Everything was very pricey and came back with almost nothing worth while.
We passed in all of the 3 cities the major designer stores and they were empty and nobody was buying anything.
Saint Marks Square was empty all day and into the evening.
I will postpone my trip to Paris until the $ get's stronger and l'm talking about almost even.
You get ripped off on the $ exchanges so if you are buying euro's it will cost you more in the exchange plus the fee which is also pricey.
And when you leave Italy you get ripped off at the airport so you would be better off either spending what you have left at the duty free shops.
I exchanged 111.00 euros and walked away with $127.00
Stay home you will be better off or else go to South America.
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10-20-2009 @ 2:19PM
Greg said...
If the greenback retreats much further and that range of products and services becomes too expensive, will Americans just end up staying home and buying there?
To answer his question... YES! I would stay home, go to Hawaii or S. America.therefore avoiding Europe altogether
10-20-2009 @ 1:57PM
Jaime B said...
Unfortunately the driving forces of the foreign exchange rates such as changing cross borders demands for other countries goods and services, demand for the perceived safer us dollar in comparison to other national currencies and capital flight in times of crisis may not be adequately quantified or be quantifiable at all. For those reasons the foreign exchange movements are explained by the media with the flimsiest of explanations that confuse more than elucidate anything. One thing for sure is that the US Dollar had been overvalued by a lot since the fifties and that has hurt America by making its goods and services too expensive for foreigners. Things have been good for America with a grossly overvalued currency and because of that the looses due to currency overvaluation have not been noticed. The consistent devaluation of the US Dollar against the Euro may create some dislocations but may be setting the conditions for America becoming an export power the size the world has never seen. There may be a boom in tourism in the horizon. When the world want to see its past they go to Italy, England or France. When the world wants to see and experience their future they will visit the United States. I am optimistic about the consequences of an orderly devaluating US Dollar. The devaluation will probably stop when foreigners rush to purchase US produced goods and services at what appear to them bargain prices.
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10-20-2009 @ 2:10PM
Don said...
Don't complain, now the exchange rate is below $1.50 in 2008 when Bush was in charge the Euro was at $1.67. I went to Germany and it cost .50 Euro to use the restroom ($.80). By the end of a 10 day Tour between going to the restroom and paying 3.00 Euro for a Coke ($5.01) you could not hardly afford to eat. First time I lost weight on a vacation. I look forward to going to Europe in 2010 when there are no crowds in any of the main locations and I get to spend less money than in 2008.
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10-20-2009 @ 2:21PM
dave said...
Bush had an odd low dollar policy that lasted way to long, now Obama is just killing the dollar beyond logic . I think Obama is doing it because he wants to destroy American net worth, because he is controlled by Soros, who sold short on the dollar. I think that Europeans understand that Obama is not going to be around after the next election, and be weak after the mid terms and republicans take back some controls. The dollar will come back then.
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10-20-2009 @ 3:43PM
Charles Carter said...
The banks must be sweating inflation. The dollars they get paid for loans will be worth less than the dollars they loaned out. They just may make all their loans with adjustable interest rates to compensate.
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