Financial Times
January 10, 2012
Do not expect Mario Draghi, European Central Bank president, to say so after Thursday’s interest-rate setting meeting but the eurozone is being helped significantly by the currency’s weakness. More falls would be welcomed by businesses across the 17-country region.
Exchange rates are important gauges of trust in economic systems, governments, politicians – and central bankers. The euro’s decline, which gathered pace in late 2011 and has continued into the new year, amounts to a vote of no confidence by financial markets in eurozone leaders’ ability to handle the region’s escalating debt crisis.
However, while the ECB is expected to leave its main interest rate unchanged at 1 per cent and eschew new steps to tackle the crisis, the falling euro may be easing what could prove a prolonged and deep eurozone recession. Especially in southern Europe, where fiscal austerity measures are squeezing domestic demand, the boost to exporters might have arrived in the nick of time.
The euro’s fall has been modest in a historical perspective. Even after recent declines, which have taken it to 16-month lows against the dollar, the euro remains significantly higher against the US currency than levels seen before the outbreak of the global financial crisis in mid-2007. Its weakness is nothing compared with the early years after the currency’s launch in 1999, when it quickly plunged below parity with the dollar.
Nevertheless, the boost to eurozone growth prospects could prove significant.
More
No comments:
Post a Comment