Dollar slump affects European exports, recovery
- Source: Global Times
- [02:41 October 21 2009]
- Comments
While spurring the prices of oil, gold and other dollar-denominated goods to a new high, the slumping US dollar also invites worries among European countries of being squeezed by their rivals out of competition for exports.
The euro came close to $1.50 on Tuesday, a level last seen 14 months ago, as the prospect of low US interest rates for some time reduced the greenback's appeal, traders said.
"Without any concrete action to prevent euro appreciation, the door is open" for the euro to top $1.50 in the near future, said Calyon currency analyst Mitul Kotecha.
Traders even have said the value of the euro could yet regain its all-time high of $1.60.
But for politicians, the prospects are gloomy.
European finance ministers on Monday voiced concern about the strength of the euro, which is hurting exporters and hampering a nascent recovery.
"We spent quite a long time discussing exchange rates tonight, it's a problem which has us worried," Luxembourg Prime Minister Jean-Claude Juncker said after a meeting of eurozone finance ministers.
"We repeated together that we wanted a strong dollar, that we needed a strong dollar," France's Finance Minister Christine Lagarde stressed.
Experts have warned that the spluttering economic recovery in Europe is endangered by a dive in the value of the dollar, which analysts say Washington covets in order to lower debts to China and boost exports.
There is concern in Europe that Washington is seeking a short-term boost to its own exports and a long-term reduction in the value of government and private debts.
Juncker said Friday that "if the euro's direction would continue to move along the lines of recent weeks, there is a risk ... that it could slow economic recovery in Europe."
The European Commission reckons that appreciation in the euro's value against the dollar of 10 percent in real terms would see exports fall by around 2.5 percent within two years.
"The strength of the euro is coming at absolutely the wrong time," Jens Nagel, head of the international department of the German Exporters Association in Berlin, told the New York Times. "The US is our biggest trading partner after the European Union, and it's a big blow to the recovery of auto companies and industrial exporters."
Meanwhile, the falling yuan, the currency in another major exporting rival China – the country also set to be the biggest victim of the depreciating dollar – further threatens European export prospects at such a vulnerable time.
Juncker said he, European Central Bank boss Jean-Claude Trichet and EU economic and monetary affairs commissioner Joaquin Almunia would now turn their sights on Beijing before the year is out.
"It is foreseen that the three of us will travel to China before the end of this year and discuss the exchange rate policy," said Juncker, without giving any details as to what message they would carry.
AFP/Global Times
