“A rising currency is eroding the competitiveness of European exporters. Central bankers are starting to worry.” The pandemic led to European policymakers increasing government stimulus and monetary policy. They also put up strong travel restrictions and mass gathering restrictions. The measures the policymakers took caused and are continuing to cause unwanted side effects. “The euro has risen 10 percent against the dollar since March, a vote of confidence by investors that also creates big problems for European exporters.” Sales have already been impacted by the virus, but this rise hurts the exporters because now the products are more expensive for customers paying with other currencies. Also, there is a risk of deflation because of the strong euro with imported goods becoming cheaper for European consumers. The Governing council is monitoring the euro exchange rate, but the European Central Bank isn’t too concerned yet. The dilemma that policymakers face is that “any overt action to weaken the currency might be interpreted as a violation of a de facto nonaggression pact among the world’s largest economic powers.” There is an agreement to not manipulate currency rates which could help one economy, but at the same time hurt others.
Ewing, Jack. “Surging Euro Presents E.C.B. With a Dilemma.” The New York Times, The New York Times, 10 Sept. 2020, www.nytimes.com/2020/09/10/business/ecb-euro.html.
3 comments:
A stronger euro is probably good news for investors but at the same time causes concerns for exporters. While the common currency is strong in terms of trade, I think thtat in reality it remains weaker or inflation-wise. I recently read an article about this which stated that the negative inflation might lead the European Central Bank to in fact provide additional simulus before the end of this year. This action might not be received well as your post mentioned. We will have to wait and see how it plans out.
I think that a stronger Euro is going to bad news for the European Central Bank. Although a stronger Euro would be good for those holding Euros as an investment, countries in the E.U. are now going to have a very hard time exporting goods. I believe that in a time where countries are trying to recover from a recession that exports should be a strong part of the economy. It will be interesting to see if the E.U. takes any action to try to reduce the strength of the Euro or if they will let it be.
Chase brings up a good point here. In times of an economic recession, European nations cannot afford to slow down on exports due to the strength of the Euro. This leaves the European Central Bank with a very interesting dilemma, do they make any effort to devalue the currency and break the de facto nonaggression pact, or do they ride it out and continue monitor the value of the currency. As you mentioned in your post, what ever the European Central Bank decides to do will have positive impacts on some economies, and negative impacts on others. In my opinion, I don't think they should take measures to devalue the currency until they have noticed a drastic decline in exports.
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