America Is Not Benefited By The Fall

Of Euro Essay, Research Paper

America Is Not Benefited By the Fall of the Euro

“99 in the year ’99, is becoming more and more of a reality”- announced Michael Rosenberg, the director of the research center of international currencies of the Deutsche Bank, last week. Using this formula, Rosenberg emphasized the probability that in 1999 the value of the Euro may fall to 99 cents. This pessimistic estimate of the value of the European Union’s currency was prompted by the fall in its value to $1.05 in the middle of last week, by the same token in January the Euro debuted at a rate equal to a $1.17.

The cheapening of the Euro was greeted in the United States with ambiguity . American tourists planning the summer season in Europe, were delighted: the beauty of Paris, the Mediterranean and the Rhine will definitely be cheaper for them. However, American economists experienced no delight- the more expensive the dollar is in relation to the Euro, the less competitive become their products in continental Europe.

It is no huge secret as to the cause of the weakness of the Euro in relation to the dollar. The American economy is developing successfully, while the European, especially that of Germany and Italy, at best running in place. In addition, in Europe, as noted recently in the findings of the auditing company, Price Waterhouse Coopers, disproportions are growing between the quickly developing countries of the European periphery- such as Finland, Portugal and Ireland- and the slowly growing economies of the largest part of the Euro. To the former not only Italy and Germany apply but France as well.

Before the current fall in the value of the Euro, the European Commission gave an OK for the increase for the Italian budget deficit up to 2.4%. Although, the increase is within the boundaries allowed in the Euro agreement(3%), experts consider it to be a worrisome indicator of the weakening of the fiscal discipline in the European domain. According to, Robert Sinhe, an expert from Citibank: there is little hope that, the European governments will be able to work out a program to stimulate their economies. The only action that can be taken is for the European Central Bank to further decrease the interest rate. But this measure is a double edged sword. It might devalue the Euro even further and deepen the difference in profitability of capital investment between the USA and Europe. And finally the Kosovo conflict. The possibility of a ground war in Yugoslavia and the unavoidable expenditures of the restoration of Kosovo and Serbia after the war under the conditions of the fiscal limitations in Europe are also a factor the decreasing stability of the Euro.

Euro optimists hope that the devaluing of the Euro will sooner or later receive a reaction from the European Central Bank. Besides that, in Europe they think that in the second part of the fiscal year, as said in the report of Price Waterhouse Coopers, the American economic bubble will burst, and conversely the development of Europe will quicken. The first is quite possible. The second is harder to believe- for if there are problems in the USA, European exporters will suffer.