Value of Euro Sinks Below $1 for 1st Time
The euro, flagship currency of a more perfect and prosperous union for Western Europe, suffered unprecedented humiliation Thursday when it dipped below $1 in value for the first time since its creation in January.
The new money, adopted by 11 member nations of the European Union, plunged to a record low of 99.95 cents in late trading in New York, down about 17% from its starting value of $1.17 at the beginning of the year. It later edged back up to close at $1.002.
The decline in the euro’s value relative to the greenback, largely uninterrupted since the beginning of the year, is a psychological comedown for those European politicians who saw the currency as an instant challenger to the U.S. dollar as a globally accepted means of payment and symbol of a more-assertive and influential Western Europe.
In recent days, the euro has also hit rock bottom against the Japanese yen and the British pound.
Ironically, the euro’s rude comedown occurs amid signs of economic resurgence across Europe. But analysts say the new currency continues to be penalized by investors for delays by Germany and other countries in reforming their economies and labor policies.
The effects on ordinary Europeans are uncertain. Many of the 290 million people who live in the countries that have adopted the euro already were leery about giving up familiar national currencies, such as lire, pesetas, francs and marks, for a transnational, untested novelty. For the moment, the euro is basically an accounting unit, but in 2002, it will replace the existing paper money and coinage of Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.
On the plus side, a cheaper euro has been a shot in the arm for European exports. Last month, France reported the healthiest exports in the last decade.
It is also good news for American tourists visiting Europe. With the decline, the dollar buys more. Though the old local currencies survive, credit-card transactions are tallied in euros.
“The European economy is clearly in a recovery phase,” French Finance Minister Christian Sautter declared this week. “The euro has the potential to rebound.”
As the euro flirted with one-to-one parity with the U.S. dollar, Europe’s top central bankers insisted that a rebound was in the offing, citing the euro zone’s sound economic fundamentals as proof. Indeed, forecasts now are for the economies of European Union nations to expand next year by a robust average of 3%.
“It [is] our firm belief that the euro has the potential over time to become stronger, based as that belief is on the preservation of price stability, based on the moderate, continuing current-account surplus that the euro area enjoys, and based also on the growth potential of the euro area,” Wim Duisenberg, president of the European Central Bank, said Monday.
“Ultimately, there is only one way it [the euro] can and will go, and that is up,” Duisenberg insisted.
The Dutchman asserted that one reason for the euro’s drop in value against the dollar is the much-stronger growth rate of the American economy, which has made the United States more attractive as a destination for foreign investment.
According to the French newspaper Le Figaro, in the last 12 months, there has been a net investment outflow from the euro zone of $1.37 trillion, a sum almost equivalent to the annual French national budget.
Some analysts believe the Frankfurt, Germany-based European Central Bank itself has contributed to the euro’s slide by making public statements indicating it would do nothing to prop up the currency. Last week, Duisenberg told a German audience that the sinking euro “causes us no sleepless nights.” According to some economists, that knocked the floor out from under the new money.
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The euro currency has tumbled for most of 1999 after starting life Jan. 1 at $1.17:
What $1 Buys, by Country:
What $1 was worth Jan. 1 and the value now in key national currencies in the euro bloc:
Country Jan. 1 Now Germany (marks) 1.678 1.952 France (francs) 5.632 6.547 Italy (lire) 1,661 1,932 Spain (peseta) 143.0 165.3 Ireland (punts) 0.677 0.781
Sources: Bloomberg News, Times research