For the first time in nearly 20 years, the euro and the dollar were equal on Tuesday. Here are some specific repercussions of the euro’s decline in value.
On price changes and purchasing power
According to Eurostat, the European statistics agency, nearly 50% of all goods imported into the eurozone are invoiced in dollars as opposed to less than 40% in euros.
For instance, the price of oil and gas, which are typically paid for in dollars, has increased recently as a result of Russia’s conflict with Ukraine.
This implies that more euros are required to purchase the same amount of goods in dollars.
According to Isabelle Mejean, a professor at Sciences Po university, “Imported goods become less competitive, compete against one another, and therefore become more expensive,” which fuels inflation and reduces the purchasing power of households.
According to William De Vijlder, economist at BNP Paribas, “dampening European tourism to the United States in particular” is one effect of the euro’s decline against the dollar.
Because tourists from Europe will have to spend more money overall on their trip to the United States as well as to other nations whose currencies are pegged to the dollar, like Qatar or Jordan, as they will have to spend more money in euros to buy the same amount in dollars.
Visitors from the United States, Qatar, and Jordan, on the other hand, profit from the exchange rate because their dollars now go a lot further in the eurozone than they did before.
on companies
Depending on how dependent a company is on foreign trade and energy, the impact of the euro’s value decline varies.
When converted into dollars, “companies that export outside the euro area benefit from the euro’s decline because their prices become more competitive,” said
on debt and growth
The value of the euro is declining, which raises the competitiveness of prices outside the single currency area and, in theory, encourages the export of goods and services from Europe.
The rise in commodity prices following the conflict in Ukraine, particularly in export-oriented economies like Germany, could however offset the beneficial effect.
Less is known about the impact on debt repayment.
According to Mejean of Sciences Po Paris, a country can pay off its debt more quickly the faster its economic growth is. But only if interest rates continue to be low and the financial markets believe European debt to be sufficiently safe.
The decline in the euro’s value relative to the dollar raises the cost of debt repayment for nations that issue debt denominated in dollars.
