Relative strength of EURO could become a burden for Euro-Zone economies – So far Berlin least affected

December 22nd, 2009

Berlin 22-12-2009

The European Commission has indicated that the Euro is presently overvalued relative to other major currencies like the Dollar, Yen and Renminbi and further rises would seriously affect Euro-Zone economies.

The Euro has basically been rising against the US dollar since March this year but halted recently, partly due to major concerns about the financial stability of EU member Greece.The European Commission has blamed debt problems in Greece and Dubai for the flucutations and fluidity in international financial markets.

Some analysts have the Euro increasing to as much as $1.75 USD in the next year.

Another two economies which are in the potential critical zone, grappling with their economies are Spain and Ireland. Their relative competiveness has been weakened by the increased value of the Euro and at the same time have suffered the increase of local labor costs in comparison to others in the Euro-Zone.

This double-whammy is already affecting Greece, Ireland and Spain and could also at some point include Italy.

The reverse is also true, namely exporting countries that have falling labor costs have a better chance to weather currency fluctuations that make their goods more expensive.

A slow improvement in the Euro-Zone economies has begun – however it is still best described as “critical but out of danger” – meaning they are still very dependent on external injection of funds from their national government owned central banks.

Meanwhile the federal German finance ministry has restated it’s oft declared position that stimulus plans are good news and if they are slowed this will in turn contribute to a slower overall recovery.

On Friday, the German upper house of parliament approved a new package of 8 ½ billion Euro stimulus programmes for 2010, which would take the years total package next year to 22 billion Euro.

The federal German government predicts that its economy will grow by around 1.5% in 2010 after having contracted circa 5% in 2009.

Tags: berlin unaffected downturn, strong euro

This entry was posted on Tuesday, December 22nd, 2009 at 10:22 and is filed under Berlin. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.