Euro Surges Past Greenback | Business| Economy and finance news from a German perspective | DW | 16.07.2002
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Euro Surges Past Greenback

After weeks of hovering around the US dollar, but always stopping short of reaching parity with it, Europe’s common currency finally made the breakthrough. On Monday the euro soared almost a cent above the dollar.


The euro hit parity with the U.S. dollar on Monday, rising to an exchange rate of $ 1.0032 - its highest value since February 2000.

For the first time in two and a half years one euro can buy more than one US dollar. It closed in on its Monday peak of $ 1.0089 and edged back to $ 1.0032 by late afternoon.

The news is music to the ears of currency traders and a vindication for European politicians who are likely to feel that the much-mocked euro has finally come of age.

The euro parity with the dollar has also restored some credibility to the single European currency and the European Central Bank.

The high euro will help keep the price of imported goods low. And it's also good news for the beleaguered travel industry as trips outside the eurozone will become cheaper.

A boost after months of shakiness

But the euro is still far below its launching price. Three years ago Europe's common currency was born at a value of one dollar and 18 cents.

In late 2000 Europe’s floundering infant currency badly crashed to below $0.85, sending shock waves around the continent.

It has been up and down -- mostly down -- ever since. Only since the beginning of this year did the euro begin its uphill climb, though always playing second fiddle to a strong US dollar.

Dollar-driven euro rise?

But despite the jubilation, most currency experts are still saying the return to parity has been primarily a Dollar story and that it has all been fuelled by continuing concerns over US corporate earnings statements.

The large US current account deficit and alarm over US accounting practices have all led to falling investor confidence in the US economy.

Several experts feel that for the US, the fall back through parity is the final sign that markets have lost faith in the strength of the US economy, which has been the motor of the world economy for the past decade.

"This is the final nail in the coffin of the new economy", David Bloom, currency strategist at HSBC in London told the Financial Times.

"The US has spent years telling the rest of the world how to run their economies and now markets are finally awakening to the problems of the US economy".

Everything isn't hunky-dory

At the same time Europe will begin worrying about the problems that a rising euro brings with it.

There is little doubt that the higher the euro goes, the more economic growth will suffer, mainly because it will be harder for European exporters to stay competitive outside the eurozone.

In Germany for instance, which accounts for almost a third of eurozone economic output, gross domestic product grew only by 0.6 percent last year. Economist say the poor performance would have been even worse, if it wasn’t for the spurt in exports, which in turn owed much to the competitive edge provided by the euro’s weakness.

Jürgen Pfister of the Commerzbank says "What unsettles us is the speed of the change. There's a danger that it will go up even more in the short term. This will make businesses nervous. They may cancel investment projects because they can no longer calculate if they can make any money on exporting their goods."