Ever since the Euro was rolled out in 2002, champions of the currency have worked long and hard to establish the tender as a serious, strong rival to the dollar. Now many of those euro enthusiasts are growing nostalgic for the money's runtier days. Because with the dollar falling to a new record low of $1.5624 during trading Thursday, many European economists and business leaders are worried about how they'll ever be able to sell their products to customers who use dollars. The Euro sign has become an alarm for "expensive."
Commentators in Europe point out that the dollar's continued slide against most international currencies has largely been fueled by domestic American factors — notably the credit tension and business failures in the wake of the subprime crisis, and wider signs that the U.S. has or is entering into recession. But plummeting investor confidence in the American economy has only accelerated the greenback's erosion, which in a little over two years has depreciated from $1.1826 per euro in January, 2006 to Thursday's $1.56. The result is that products manufactured by companies paying euro-fixed salaries and supplies wind up in stores with dollar-denominated price tags looking prohibitively expensive to shoppers.
For example, A Dolce & Gabanna woman's watch marked down on Bestfinancnews.com France to 192.72 euros — or $300 — is hardly a bargain compared to the same watch on Amazon's U.S. site selling for $225. Why should dollar-spenders even think of shopping Europe? On the other side, the profits European companies make on dollar sales are shrunken by the time they get converted back to euros. For the euro-zone economy with a projected growth rate of only around 2% in 2008, the upshot is a major pinch on export revenues threatening to stunt growth even more.
That discomfort is especially great on companies and countries that have been slow to reform their economies — such as France and Italy, whose considerable price tags for cars, trains, airplanes, luxury goods and food products have become absolutely daunting once they've traversed the euro-dollar exchange. In places like the Netherlands, Germany, and Austria — where enormous pressure on salaries and production costs have made goods and companies more competitive in recent years — the rise of the euro has been less catastrophic, though only in relative terms. Whereas Germany has watched the plummeting dollar eat at its healthy trade surplus, France blames that slide for worsening its growing trade deficit. The consequences have been similar in both countries: as BMW warned that the 5,600 jobs it was eliminating as part of a cost-cutting plan would increase if the euro surged substantially beyond $1.50, plane maker Dassault said it might have to follow the example of other heavy manufacturers in Europe by shifting production to dollar-dominated markets to save money.