Weakened Euro

The Euro has been depreciating relative to almost all other currencies for a while now. The euro used to be able to buy ~1.40 American Dollars, but now has fallen to just 1.11 US Dollars. This has caused mixed opinions on whether this is a good thing for the Eurozone currently. This depreciating of the currency will bring many benefits to the members of the Eurozone and help get their economy, which has been struggling the most out of all major developed countries following the Great Recession of 2008. This will be done by the influx of demand for now cheap European goods. Consumers from all over the world will flock to the Eurozone as goods produced there have become much cheaper. A simple example of why consumers will flock to European goods is: imagine that France produces widgets. France’s widget costs 100 euros. As late as one year ago, this widget would have cost an American $140. This is because to buy a widget, an American must first exchange his American dollars for European euros. The exchange rate was ~1 euro=1.4 U.S dollars. Today though this same consumer can purchase this widget for only $111. This will cause a lot more consumers to demand these widgets and able to afford them! As Tommy Stubbington wrote in his Wall Street Journal article, Parity Rumblings Emerge Over Euro, “”The euro area stands to be a winner of the currency wars in 2015,” said Jonathan Baltora, inflation linked bonds fund manager at AXA Investment Management, which oversees 607 billion euros of assets, referring to the possibility that a weaker currency would make European goods cheaper than those produced in Japan and elsewhere.” This is precisely what is going to happen, and what Europe NEEDS to happen to finally get out of this period of virtually no economic growth lately. The European Central Bank knows this and that is why (or atleast part of the reason why) the ECB announced a quantitative easing plan of bond buybacks. As Joseph Adinolfi writes in his article, Euro Records Largest Weekly Loss Since Septemeber 2011, “BK Asset Management’s Boris Schlossberg rhetorically asked if eurozone quantitative easing was intended to drive the euro even lower, arguing that ECB Executive Board member Bernard Coeure admitted as much during an appearance from Davos, Switzerland that was broadcast on CNBC Friday. “Taken from that perspective the ECBs actions make perfect sense,” Schlossberg said in a Friday morning research note. “The QE announcement has shaved another 300 points off the EUR/USD exchange rate and the pair is now fully 20% lower than just nine months ago.”” This will hopefully give the entire Eurozone the economic boost it needs to get back on track as an economic heavyweight!

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