DREAM / The Prime Minister resigns and wakes up under the Parisian bridge!

 Kliko këtu për të tjera
Voxpress:

For the first time in 20 years, what are the consequences of equalizing the euro with the dollar?

2022-07-12 22:45:50Biznes SHKRUAR NGA REDAKSIA VOX
For the first time in 20 years, what are the consequences of equalizing the euro
Illustrative photo

The value of the euro was equalized with that of the US dollar on Tuesday, for the first time in almost 20 years. Some concrete consequences of this fall in the value of the euro are:

– in inflation and purchasing power

According to the European Statistics Agency, Eurostat, almost half of all goods imported into the Eurozone are invoiced in dollars, while less than 40 percent in euros.

Oil and gas, for example, are traditionally paid for in dollars, and the price of these two products has risen in recent months as a result of Russia's war in Ukraine.

This means that more euros will be needed to pay for an equivalent amount of products in dollars.

"Imported goods become less competitive, compete against each other and therefore become more expensive" - ​​which increases inflation and erodes the purchasing power of households, says Isabelle Mejean, a professor at Sciences Po University.

A specific effect of the fall of the euro against the dollar is that it "will reduce European tourism in the US, especially", says William De Vijlder, economist at the banking agency, BNP Paribas.

This is due to the fact that European visitors will have to spend more euros to buy the equivalent amount in dollars. This increases the overall cost of their trip to the US, but also to other countries whose currencies are tied to the dollar, such as: Qatar or Jordan.

In contrast, visitors to Europe from the United States, Qatar and Jordan will benefit from the exchange rate, as their dollars can buy more in the Eurozone than before.

– in businesses

The effect of the fall in the value of the euro differs, depending on how dependent a business is on foreign trade and energy.

"Companies that export outside the euro zone benefit from the fall of the euro because their prices become more competitive" when converted to dollars, says Philippe Mutricy, director of research at Bpifrance bank.

"Unlike them, import-oriented businesses are at a disadvantage," he says.

In the case of local craftsmen, who depend on raw materials and energy but export little, the weak euro could lead to a huge spending spree.

The biggest winners from the fall in the euro exchange rate are the export-oriented manufacturing sectors, such as the aerospace, automotive, luxury goods and chemical industries.

And major players are "better prepared for shocks" as they can hedge against exchange rate swings, Mutricy says.

"They buy foreign currency in advance, at favorable rates, to protect themselves from sharp fluctuations in the exchange rate," he explains.

– in economic growth and debts

The fall in the value of the euro makes prices outside the Eurozone more competitive – theoretically boosting the export of European goods and services abroad.

But the positive effect may be reduced by rising commodity prices – as a result of the war in Ukraine – especially in export-oriented economies such as Germany.

The effect on debt repayment, however, is less clear.

The faster the rate of economic growth, the faster a country can pay off its debt, says Mejean of Sciences Po University, in Paris. But only on the condition that financial markets consider European debt sufficiently safe and interest rates remain low.

For countries that issue debt in dollars, the fall in the value of the euro against the dollar increases the cost of debt repayment.

– at the European Central Bank

By increasing inflation, the fall of the euro could prompt the European Central Bank (ECB) to raise interest rates more quickly. It is preparing to tighten borrowing costs in July for the first time in 11 years.

"You can say that the ECB would not react to rising commodity prices, but the challenge of regaining control over inflation increases, as the exchange rate increases the price of imports," says De Vijlder.

The Bank of France said at the end of May that the weakening of the euro could complicate the ECB's efforts to tame inflation. / AFP


Në përputhje me standarded JTI

Video

SHIKO KANALIN NE YOUTUBE
×