Regarding the effect of this depreciation on inflation and household purchasing power, nearly half of the products imported into the euro zone are invoiced in dollars once morest less than 40% in euros, according to the European statistics office Eurostat.
This is for example the case of many raw materials, starting with oil and gas, the prices of which have already risen in recent months in the context of the war in Ukraine.
But more euros are needed to buy imported products in dollars. “Imported products lose competitiveness, compete with each other, and are therefore more expensive“, indicates Isabelle Méjean, professor at Sciences Po. This contributes to accelerating inflation and threatens the purchasing power of households.
Incidentally, the depreciation of the euro once morest the dollar will “clearly curbing European tourism, especially in the United States“, warns William De Vijlder, an economist at BNP Paribas: as they need more euros to pay the same amount in dollars, the bill for their stay increases in the United States as well as in countries whose currency is pegged to the dollar (Qatar, Jordan…)
On the contraryAmerican but also Qatari or Jordanian tourists gain from the change: during their stays in the euro zone, they can consume more with the same amount of dollars.
About companies
The effect of the fall in the euro varies according to the companies’ dependence on foreign trade and energy.
“Companies that export outside the euro zone benefit from the depreciation of the euro because their prices are more competitive (once converted into dollars, editor’s note), while companies that import find themselves penalized“, sums up Philippe Mutricy, director of studies at the public bank Bpifrance.
On the other hand, for companies dependent on raw materials and energy and which export little, such as local craftsmen, the costs explode.
The big winner of the fall in the euro is the manufacturing industry, which exports its products abroad, particularly in aeronautics, automobiles, luxury goods and chemicals.
And the big bands are”better prepared for shocks“because they benefit from a hedging mechanism that helps to mitigate the fluctuation of currency rates, emphasizes Philippe Mutricy.”They buy currencies in advance at an attractive rate that protects once morest price fluctuations“.
On growth and debt
Theoretically, the depreciation of the euro makes prices more competitive outside the euro zone and therefore stimulates exports of European goods and services abroad.
This might cushion the impact on growth of the rise in commodity prices in the wake of the war in Ukraine, especially in countries whose economy is driven by exports, such as Germany.
For the repayment of the debt of European countries, the impact is less obvious.
Further growth can”facilitate debt repayment“, explains Isabelle Méjean, professor at Sciences Po Paris, provided that the markets consider European debt as sufficiently safe and that interest rates remain low.
But for states that have issued bonds denominated in dollars, a depreciation of the euro once morest the dollar increases the cost of redemption.
For central bankers
The depreciation of the euro, by accelerating inflation, may encourage the European Central Bank (ECB) to raise its interest rates more quickly. She is preparing to reassemble them in July for the first time in eleven years.
“It can be said that the ECB should not react to higher commodity prices, but its challenge to regain control over inflation becomes even greater as the price of imports increases due to the increase in the exchange rate.“, emphasizes William De Vijlder.
The Banque de France also estimated at the end of May that the weakness of the euro might complicate the ECB’s efforts to control inflation.
