The Plight of a New Currency

The euro's troubles has also caused some headaches in the U.S.
George DonnellyAugust 1, 1999
Issues with the Euro?

Pity the poor euro. Introduced with fanfare in January, the euro has sagged since its inception, coming close to parity with the dollar. But while the euro has spurred some embarrassment and political handwringing among its Eurozone advocates, the new currency’s weakness also has caused some headaches in the United States, especially among multinationals hoping to capitalize on a united marketplace.

“The problem is not just with the currency, but with the level of growth” in Europe as well, says Joseph Quinlan, a global economist with Morgan Stanley. Germany, Italy, and Spain have been flat, while France’s economy has grown between 1 and 2 percent. There’s been particular weakness in the capital machinery and chemicals sectors, he adds, reflecting some industrial stagnation. While the stronger dollar makes U.S. goods more expensive abroad, “we provide goods and services via affiliates and not necessarily exports, and that makes a big difference.”

Not all the euro news is bad, at least from a European perspective. European exporters have been able to exploit the currency’s relative weakness to the dollar, expanding the already wide trade gap between the United States and Europe. And, as many predicted, European enterprise is rapidly consolidating.

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So, after a bumpy start, many are saying the euro and Europe will rebound. Quinlan of Morgan Stanley predicts improving European economic conditions for the second half of this year and into next, spurred in part by more M&A activity and continuing growth in the information technology sector, including the advent of more E-commerce business applications.