THE EURO’s sharp slide, which saw it hitting a four-year low yesterday against the dollar, should provide a welcome boost to euro-zone exports and growth in the coming months. But the region is finding it hard to see the bright side of the currency’s weakness.
On a trade-weighted basis, the euro was 8 per cent lower than 12 months ago – the steepest year-on-year fall since November 2000.
“Euro-zone politicians should welcome the depreciation as a well-timed cushion against the acceleration in fiscal tightening that is getting under way,” said Marco Annunziata, chief economist at UniCredit.
“Americans would have been much quicker at seeing the benefits and, behind the usual strong-dollar rhetoric, would have breathed a sigh of relief.”
John Whelan, of the Irish Exporters’ Association, said Irish exporters would be “quietly happy”. Exports to the US were receiving a tremendous boost, he said. Ireland had €42.6 billion worth of exports to the US last year, and the recent euro fall was effectively a €6 billion boost to the Irish economy.
In normal circumstances, a 10 per cent fall in the euro’s trade-weighted value should boost growth by about 0.5 percentage points in the following 12 months, said Commerzbank in Frankfurt.
These are not normal circumstances, however. Jörg Krämer, Commerzbank’s chief economist, said financial market tensions could undermine economic confidence, as they did after Lehman Brothers collapsed in September 2008.
“This has the potential to be an ‘uncertainty shock’,” he said.
In Spain, exporters and the tourist businesses that depend on British and other visitors from outside the euro zone welcome any fall in the euro.
“The power of the pound is good for the tourist sector,” said Pedro Iriondo, president of Mallorca’s tourism development association, a private sector group.
“As always in the tourism business, when the currency of the destination falls against the currency of the visitors, they have more buying power.”
In Spain, Portugal and Greece, the countries hardest hit by the crisis, exports beyond the euro-zone are relatively unimportant as sources of economic growth.
A weaker currency would help but “It is not a get-out-of-jail-free card”, said Gilles Moec, European economist at Deutsche Bank.
Even in highly export- dependent Germany, the sense of relief was not huge.
“It helps us but only to a limited extent,” said Anton Börner, the president of Germany’s BGA exporters’ association.
“In the longer term, a falling euro would bring us more concern than joy.”
One side-effect would be higher import prices, which could lead to higher interest rates if inflation rose as a result. “A weaker euro would also be a sign of investor mistrust, which is not good for Germany as a place to do business,” Mr Börner said.
“Companies might gain one or two additional orders as a consequence,” said Olaf Wortmann, an economist at VDMA, the German engineering federation. “But we don’t expect an order flood because of the weaker euro.”
German engineering companies prided themselves in their resilience in the face of the currency’s rise last year, so the recent fall is not such great news.
“When the euro was at $1.50, these companies were booming, simply because the demand for such high-tech machinery was higher at that time,” Mr Wortmann said.
A spokesman for BMW, the German premium car maker, said: “This is a doubled-edged sword. An enduring weakness of the euro is a benefit but, on the other hand, we do rate a permanent stability of the euro zone very highly.”
In France, however, there seemed more reason to cheer.
French exports tend to be more price-sensitive than German products.
“The level of the euro is very acceptable and provides advantages in terms of external competitiveness,” Jean-Pierre Jouyet, head of the AMF, France’s financial markets regulator, said yesterday. – Copyright The Financial Times Limited 2010
