What are the consequences of the parity of the euro with the dollar

Photo illustration of dollar and euro banknotes. November 7, 2016. REUTERS/Dado Ruvic (Dado Ruvic/)

One euro is worth one dollar, for the first time in 20 years the European currency depreciated until it reached parity with the US bill on Tuesday.What are the concrete consequences of this depreciation?

Inflation and purchasing power

Near half of imported products in the euro zone are invoiced in dollarscompared to 40% that are bought in euros, according to the Eurostat statistics office.

This is the case for many raw materials, beginning with Petroleum and the gaswhose prices have already been climbing in recent months due to the war in Ukraine.

With the depreciation of the European currency, more euros are needed to buy imported products in dollars, such as oil and gas (Simon Dawson/Bloomberg)
With the depreciation of the European currency, more euros are needed to buy imported products in dollars, such as oil and gas (Simon Dawson/Bloomberg) (Simon Dawson/)

With the depreciation of the European currency, more euros are needed to buy imported products in dollars.

“Products imported in dollars lose competitiveness (…) and become more expensive”, explained Isabelle Méjean, professor at the Science Po Higher School. This contributes to accelerating inflation and threatens the purchasing power of households.

Another vein of this depreciation is that it will curb European tourism, especially to the United States”, said William De Vijlder, an economist at BNP Paribas.

But at the same time, tourists from the United States and other destinations gain from the exchange rate and they can consume more with the same number of dollars.

Companies

The effect of the fall in the price of the euro varies according to the dependence that companies have on foreign trade and energy.

“Companies that export outside the euro zone benefit from the depreciation of the euro, since their prices become more competitive, but importing companies are affected”Philippe Mutricy, research director of the public bank Bpifrance.

A Daimler factory in Rastatt, <a class=Germany. The big winner is the manufacturing industry that exports, including car manufacturers (REUTERS / Kai Pfaffenbach / file)” height=”2379″ src=”https://www.americanchronicles.news/wp-content/uploads/2022/07/1657640738_465_What-are-the-consequences-of-the-parity-of-the-euro.jpg” width=”3458″ />
A Daimler factory in Rastatt, Germany. The big winner is the manufacturing industry that exports, including car manufacturers (REUTERS / Kai Pfaffenbach / file) (KAI PFAFFENBACH /)

The companies dependent on raw Materials and of the Energy and that they export little are going to register an explosion of their costs.

The big winner is the manufacturing industry that exportsespecially the sectors of the aeronauticsmanufacturers of carthe luxury and the chemical industry.

Growth and debt

stimulates exports.

This could shock the impact on the growth of raising raw material prices in the context of the war in Ukraine, especially in more export-oriented economies, such as Germany.

For the repayment of the debt of European countries, the impact depends.

The depreciation of the euro accelerates inflation and this may prompt the European Central Bank (ECB) to raise interest rates more quickly (REUTERS / Wolfgang Rattay)
The depreciation of the euro accelerates inflation and this may prompt the European Central Bank (ECB) to raise interest rates more quickly (REUTERS / Wolfgang Rattay) (WOLFGANG RATTAY /)

A higher growth “may facilitate debt repayment”, explained Méjean, as long as markets consider European debt safe enough and interest rates remain low.

But for states that issued dollar-denominated bonds, a depreciation of the euro increases the cost of redemption.

central banks

The depreciation of the euro speed up inflation and this can encourage the European Central Bank (ECB) to raise interest rates more quicklywhen the issuer was preparing in July for the first increase for eleven years.

“It can be said that the ECB should not react to rising commodity prices, but their challenge of controlling inflation becomes more preponderant, since the price of imports rises”highlighted William De Vijlder.

(By Léa PERNELLE, AFP)

Keep reading:

The euro and the dollar reached parity for the first time in 20 years

Source-www.infobae.com