As the euro rises and European leaders fret, American expats and European tourists are reaping the benefits of the currency's new clout.
Why go to Paris when Paris, Las Vegas is so much cheaper?
A development that has begun concerning economists and European company chiefs is a welcome relief to Kim Bradley.
Ever since the euro began its rapid rise against the dollar in recent months, the expat American has watched the $7,000 credit card bill she left behind in New York City a year ago shrink. The strong euro has helped the Berlin magazine editor pay off her American bills much more quickly.
"The dollar can keep falling as far as I'm concerned," said Bradley, who gets her pay checks in euros.
Forecasts seem to indicate it will continue to do just that. At the moment, the euro is hovering at around $1.33, slightly down from the $1.346 high it reached last week. Though a boon to Europeans travelling abroad -- and expats eager to pay off bills -- the euro's rise has set off alarm bells among European leaders and business chiefs.
The 12 European countries that use the euro, among them France and Germany, are experiencing slow growth rates at the moment and are heavily dependent on the success of their exports. The strong euro means those exports are more expensive abroad, putting a damper on the continent's nascent economic recovery.
European leaders see a "worrying trend"
"Exports have been the only engine of growth,” said Manuela Preuschl, a Deutsche Bank financial markets analyst.
Electronics or automobile makers who are active in US markets or Asian countries which use the dollar, have been especially hard hit. Siemens CEO Heinrich von Pierer said last month that his company’s products have risen in price by about 30 percent.
The strong euro has been no laughing matter at Siemens
Over the past few weeks, European leaders have begun voicing concern over the currency’s steady rise and the dollar’s decline in the past nine months. Finance ministers from the 12 EU countries that use the euro issued a joint declaration last week criticizing the United States for letting its current-account deficit get so out of control. Germany’s Chancellor Gerhard Schröder called the euro’s rise “worrying.”
Economists believe the US’s large current account deficit and Washington’s massive public spending on security and other areas is a major reason for the dollar’s fall and the Euro’s subsequent rise. Many here are annoyed at the Bush administration’s deficit spending and its seeming lack of interest in strengthening the dollar.
Schröder said Washington should take care of its own economic issues
“It's difficult to ask Europeans to implement structural reforms -- which they are already doing -- and at the same time not put a lot of focus on its own economic issues," Schröder said.
For all their complaints, European finance ministers, even the European Union’s central bank, can’t do much against the dollar’s fall. Evidence of that came after the ministers’ statements last week, tacitly supported by European Central Bank (ECB) President Jean-Claude Trichet who had earlier called the euro’s rise “brutal and unwelcome.”
Immediately following their statement on Tuesday, the dollar bounced back against the euro but rose again to $1.34 later in the day. It has hovered around $1.33 since then.
“The ECB could intervene to stop the rise, but it won’t happen,” said Jerome Creel, a French economist at the Paris institute OFCE. “The bank is not so strong and not that credible.”
Euro might hit $1.40 in a year
Currency traders were happy with an announcement by US Federal Reserve Chairman Alan Greenspan on Tuesday: He raised the interest rate at which banks borrow from each other on overnight loans by a quarter percentage point. The increase in the fund rate, the fifth since June, is designed to temper inflation and might boost the dollar slightly. But analysts say the euro is will most likely continue to rise.
A recent Deutsche Bank report forecast that the euro would rise to $1.40 over the next 12 months.
”For the time being we still have not reached the top,” said Preuschl, the Deutsche Bank economist.
In the meantime, Europeans seem more willing than in recent years to travel across the pond to see just how far their money will go. Neckermann Reisen, one of Germany’s largest travel agencies, reported booking 10 to 20 percent more trips to the US in the last year than in 2003, said a spokesman.
Flight attendant goes shopping
“The dollar has just made it so much cheaper,” says Rolf-Dieter Grass, whose company is offering European shoppers Christmas shopping trips to New York City complete with hotel.
The Macy's department store in New York under a shopping siege
Europeans not able to cross the pond are making sure friends help them take advantage of their currency's strong position at the moment. Lufthansa flight attendant Herwig Schober returned from a recent trip to New York City with more than just his own luggage. “I picked up three bath towels for a friend and cosmetics and cologne,” he said. “At the moment, there are finally positive effects of going over there again."