Oh well. It is a newspaper, after all (actually, to be fair, I believe some politicians are throwing the term around, and were first).
The always-amusing aspect of the declining dollar, relative to the Euro, was foreigners taking cheap, quick trips to the US, shopping and heading back to work on Monday. Except. They (Europeans, certainly) purchase luxury imports when in the US, because they’re already less expensive than in the EU, anyway – thereby exacerbating the US trade deficit! Like I said, always funny.
This drop, however has more serious implications (although I, like those mentioned in this article, simply had not expected them to hit all this quickly).
What concerns economists more, however, is a sharp drop in the monthly survey of purchasing managers in the 13-nation euro zone – evidence that the credit crisis that began in the U.S. mortgage market and infected British and German banks has now seeped into Europe’s underlying economy.
An index of purchasing managers in the service sector dropped four points in September, its largest monthly decline ever, suggesting that commerce here is slowing faster than economists predicted.
Airbus, subject of much of the IHT article, is the best case in point, particularly with regard to very big multinationals, who are making deals in dollars:
Airbus is particularly vulnerable because it earns all its revenues in dollars and incurs about half of its operating costs in euros.
Ouch. Hence the lay-offs. It’s hard on a macro-economy when big manufacturers/employers are made so much less profitable within a week, for reasons entirely outside their market.
Apropos China, the hypocrisy of low-Renminbi-bashing (the extent that European parliaments participated – it was, to be fair, a very American past-time) is being, and will be further, laid bare:
Most European exporters have weathered the rally without complaint, having cut costs and hedged their exposure, either financially or by moving production to non-euro countries. But a noisy minority is starting to agitate, and political leaders, notably in France, have picked up their concerns, lobbying the European Central Bank to take steps to stem the appreciation of the euro.
“We hope the ECB, at its meeting in October, will examine the consequences and take appropriate action,” the French finance minister, Christine Lagarde, said during a visit to China on Friday.
The ECB rejects such demands as political meddling, and it has responded in increasingly testy fashion to statements made by President Nicolas Sarkozy of France and his ministers.
Eco 1 students, remember: serious economies depend, more than anything else, upon central bank indepence. Interest rates are not things to be used to keep currency valued low for the benefit of exporters.
Secondarily, though, we could start seeing some more active management of floats. This one (and this is hardly rare for a macro-economy) is hard to predict. The reasons for the declining Euro are hardly related to the Euro or the European economy – does the European Central Bank really want to start fighting against the low esteem in which the US dollar is beginning to be held? They are the world’s Second Currency, and they can’t easily defeat that.
The upside for the ECB is that the US also wants a stronger US dollar (although Bernanke has a funny way of showing it).