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Sat, Jun 15, 2002 - Page 19 News List

Euro finally taking off

The European currency slumped after its launch in 1999. But it is up 8 percent since April, and could go higher

AP , FRANKFURT, GERMANY

A waiter picks up an ashtray from a table, right, as a five euro note and euro coins are left to pay for an order, Thursday, at a Paris cafe. The euro, second fiddle to the dollar since its birth in 1999, may finally be ready to take off, making Italian leather and Parisian cafe cremes more expensive for tourists but offering potential relief to US manufacturers chafing at the strength of the greenback.

PHOTO: AP

The euro, second fiddle to the dollar since its birth in 1999, may finally be ready to take off, making Italian leather and Parisian cafe cremes more expensive for tourists but offering potential relief to US manufacturers chafing at the strong greenback.

Some economists even predict the euro, up 8 percent since early April, will climb back to parity -- one to the dollar -- by the end of the year, if not sooner. A euro was worth US$0.94 Thursday, up from US$0.87 in early April.

A further climb would have a host of consequences. Americans would miss seven years of lower prices on European goods, whether shopping at home or abroad. Inflation would fall in Europe as imports get cheaper.

And US exporters of everything from Detroit cars to Napa Valley wines would see their wares gain price advantages against foreign competitors.

Economist Stefan Bielmeier at Deutsche Bank in Frankfurt is one of those who thinks the euro rally isn't over. "I expect another upward movement of the euro in the near future," he said, predicting it will reach US$0.98 by the end of the year.

Eberhardt Unger at the SEB investment bank predicted the euro will draw level with the dollar by the end of the year, a place it hasn't been since February 2000.

The euro reached US$1.18 shortly after its launch in January 1999, but soon slid through the one-dollar mark to its all-time low of US$0.823 in October 2000. Since then, the 12-nation money has rallied several times toward parity, but fizzled each time.

Economists who predict the euro's rise cite the ballooning US current account deficit, the broadest measure of foreign trade, running at US$417 billion last year and showing little sign of abating this year.

When Americans buy more imported goods, merchants must get the foreign currency to buy those goods by selling dollars, driving its value down. Until now, that has been offset by foreign investors who stock up on dollars to buy a piece of the US stock market boom, purchase real estate or build factories.

But the party on Wall Street is history, and the current unease over the US economy makes many think the days of the strong dollar are over.

"The US economy is dependent on foreign investors. They must finance the current account deficit," said economist Unger. "They have done this gladly for several years, but if they do not invest another US$420 billion in the US, then there could be a problem."

But a strong euro wouldn't be all bad for the US economy. The National Association of Manufacturers has been pressing the Bush administration to seek a weaker dollar, saying that the strong dollar has cost US$140 billion in lost manufacturing exports over the past 18 months.

US tourists at Berlin's landmark Brandenburg Gate were taking the euro's bounce in stride Thursday -- and already thinking one-to-one.

Paul Doering, a Gainesville, Florida, pharmacist on his sixth trip to Germany, said he likes the euro because it's easier to convert into dollars than the German mark, which went out of circulation this year.

"Frankly, I don't like having to pay close attention to exchange rates," said Doering, 53. "So now, I can go into a shop and think, `two euros, okay, so US$2, then.' I find it extremely convenient."

Not everyone thinks the euro is headed up.

Jane Foley, currency strategist at Barclays Capital in London, sees the euro perhaps hitting US$0.96, but predicts it will fall back to US$0.89 by the end of the year. Investors shaken by the US market may not find things much better in Europe, where a recovery has been slow to get going, she said.

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