Sun, May 18, 2003 - Page 11 News List

The depressed US dollar is causing pain for European exporters and wholesalers

BAD TIMING The weakness in the American currency couldn't have come at a worse time for the European economy, although most businessmen still have a few tricks up their sleeves to deal with currency fluctuations


Wilhelm Steifensand's family has exported elite German wines to the US since the early 19th century, and they're not going to stop just because of the strong euro.

But the European currency's climb against the dollar has already pushed his P.J. Valckenberg GmbH to tweak wholesale prices upward, making up for the fact that the dollars it earns now buy fewer euros back home.

"It's not having an immediate effect, but it's not going to make it easier to sell German wines in the United States," Steifensand said by cell phone from a New York business trip. "I hope it's not going to be endlessly high."

While the dollar's sudden fall has already made itself felt, Steifensand has some typical tricks up his sleeve that help veteran exporters weather turbulence from currency markets.

The euro's surge against the dollar has suddenly deprived European exporters of lopsided price advantages and fatter profit margins they have enjoyed since the 12-nation currency plunged in the months after its introduction in January 1999.

At Friday's rates, one euro was worth about US$1.16, compared with just US$0.86 15 months ago and US$0.82 at the euro's bottom in October 2000. That means, for instance, an US$80,000 car reaped 93,000 euros 15 months ago but only 69,000 euros today.

The stronger euro may please European officials who see it as a competitor to the dollar as the preferred international currency. But its rise couldn't have come at a worse time for the European economy, which is struggling with sluggish growth.

Major European companies say the stronger euro sapped first quarter earnings: carmaker Volks-wagen, jeweler Bulgari, chemicals and drugmaker Bayer, aerospace firm EADS, which includes aircraft maker Airbus, pharmaceuticals companies Aventis and Altana and beer giant Interbrew.

The dollar's decline is fallout from the collapsed US stock market boom, economists say. To pull out of US-based assets, investors had to sell dollars -- driving the greenback down 10 percent so far this year.

"The timing of the appreciation, from the point of view of exporters, was very unlucky," said economist Michael Schubert at Commerzbank in Frankfurt.

The impact is most worrisome for Germany, where near-zero growth threatens to drag down the rest of Europe. A third of the German economy is exports.

It should offer one advantage: making US vacations cheaper for Europeans. But major tour operators such as Germany's Fernreisen Dertour and ADAC Reisen report US bookings plunged ahead of the Iraq war -- and still haven't recovered. Hotels in Germany have reported increased bookings as many people put off overseas vacations.

Yet currency fluctuations are hardly a new challenge for exporters. In fact, it was worse in 1995, when a strong German mark, since replaced by the euro, hit the equivalent of one euro to US$1.46.

Big companies typically protect themselves by hedging on currency futures markets. Automaker Porsche, a big exporter to the US, says it's hedged out to 2006.

Winemaker Steifensand has a US subsidiary, a New York-based import-export company that markets his Rieslings and those of 15 other vineyards, paying US costs with the same dollars it earns -- meaning there's no currency effect for those expenses.

Other companies have similar operations. Automaker DaimlerChrysler has its Chrysler division and its truckmaker Freightliner in the US, and its Mercedes division turns out sport utility vehicles in Tuscaloosa, Alabama.

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