What are the consequences of parity of the euro with the dollar?

Illustration of the dollar and euro banknotes. November 7, 2016. (Reuters) / Dadu Rovich

One euro is equal to one dollar, and for the first time in 20 years the value of the European currency has depreciated until it reached parity with the US bill on Tuesday. an actWhat are the tangible consequences of this consumption?

Inflation and purchasing power

near Half of all imported products in the Eurozone are billed in dollarsCompared to 40% in euros, according to the European Statistics Office.

This is the case for many raw materials, starting with petroleum and the Gaswhose prices have already risen in recent months due to the war in Ukraine.

With the depreciation of the European currency, more euros are needed to buy imported products in dollars, such as oil and gas (Simon Dawson/Bloomberg)
With the depreciation of the European currency, more euros are needed to buy imported products in dollars, such as oil and gas (Simon Dawson/Bloomberg)

With the devaluation of the European currency, More euros are needed to buy imported products in dollars.

“Dollar-imported products lose their competitiveness (…) and become more expensive”explained Isabelle Megan, a professor at Sciences Po Higher School. This contributes to accelerating inflation and threatens the purchasing power of families.

This is another reason for this consumption It will limit European tourism, especially to the United Statessaid William de Vigelder, an economist at BNP Paribas.

But at the same time, tourists from the United States and other destinations benefit from the exchange rate and They can consume more for the same number of dollars.

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The impact of the depreciation of the euro varies with the companies’ dependence on foreign trade and energy.

“Companies exporting outside the eurozone benefit from the devaluation of the euro, as their prices become more competitive, but importing firms are affected”Philip Motrici, Director of Research at General Bank Bpifrance.

Daimler plant in Rastatt, Germany.  The biggest winner is the manufacturing industry that exports, including car manufacturers (REUTERS/Kai Pfaffenbach/file)
Daimler plant in Rastatt, Germany. The biggest winner is the manufacturing industry that exports, including car manufacturers (REUTERS/Kai Pfaffenbach/file)

Accredited Companies Raw materials And the energy And that they export so little will record an explosion in their costs.

The biggest winner is the manufacturing industry that exportsespecially sectors Aviationmanufacturers of SentencesThe luxury. luxury and the chemical industry.

growth and debt

In theory, the depreciation of the euro makes prices more competitive and It stimulates exports.

This is possible Mitigating the impact of higher commodity prices on growth In the context of the war in Ukraine, especially in export-oriented economies, such as Germany.

As for the debt repayment of European countries, the effect depends.

The depreciation of the euro is accelerating inflation and this could prompt the European Central Bank (ECB) to raise interest rates even faster (REUTERS/Wolfgang Rattay)
The depreciation of the euro is accelerating inflation and this may prompt the European Central Bank (ECB) to raise interest rates even faster (Reuters/Wolfgang Ratte)

a High growth ‘may make it easier to pay off debt’As long as markets consider European debt to be safe enough and interest rates remain low, Megan explained.

But for countries that have issued dollar-denominated bonds, the depreciation of the euro increases the cost of redemption.

central banks

depreciation of the euro inflation acceleration This is possible Pushing the European Central Bank to raise interest rates fasterwhen the source was preparing in July for the first increase for eleven years.

“It can be said that the European Central Bank should not react to rising commodity prices, but Their challenge to control inflation becomes more likely, as the price of imports rises.”highlighted by William de Vigelder.

(By Lea Burnell, AFP)

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The euro and the dollar reached parity for the first time in 20 years

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