A solid article on the cheaper euro’s economic impact was released by The Economist last week. Titled “A Mixed Blessing”, the article explores the many advantages and disadvantages that a weak euro might have during an economic recovery. It states that “the cheaper euro will be good for some European companies – up to a point.” Today’s blog, I’d like to summarize some of the interesting insights that were offered.
· The euro’s decline….should bolster exports for big manufacturers (particularly in northern Europe) and luxury-goods companies (particularly in Italy and France) while boosting tourism across the continent.
· However, “because most businesses loathe uncertainty….some [didn’t expected the euro to decline, and instead have] locked themselves into hedging arrangements that will prevent them from taking advantage of the lower euro until next year or even the year after”
· On the other hand, as euro becomes weaker, “European companies will find it more expensive to raise capital internationally. They will also have to pay more for commodities such as oil which are priced in dollars,” and
· Since “even Germany does more trade with France than any other country….this means that the huge number of European companies that export mainly within the euro zone are seeing the costs of their raw materials rise without any accompanying benefits. “
The most important insight the article offers, however, points to the fact that structural problems have been created by the single currency. It is not “weak euro versus strong euro”, but whether there should be a single currency for the entire continent at all.
As politics, the euro might have contributions in making alliances among European countries more approachable (open to debates); as a policy, it has not been able to “spark a glorious period of innovation and productivity growth.” Forcefully bonding together a group of vastly different economies may not have been a good idea after all. We might want to wonder if the currency has left the continent less competent intrinsically, and whether Europe actually needs it or not.
Via The Economist:
http://www.economist.com/businessfinance/displaystory.cfm?story_id=16216111
Yi Gao
Research Analyst
Analyze Capital LLC
e-mail:anlyzecapital@gmail.com
I wish I was in Europe at the moment.
ReplyDeleteIt is not only the economy that separates the Eu countries. In my opinion, it is also the scars that were left in history. Two of the world worst wars were ignited between European countries. Although the antipathy between countries such as Germany and France has subsided, uneasiness still exists. In addition to that, as much as their culture are different so is their constitutions. Here we are not only talking about economic differences but also political and cultural.
ReplyDeleteIt is not impossible for Europe to unify, but it will take Herculean efforts for this to happen.
Yi, nice blog, btw!