'Turbo effect' revs up Europe
But EU markets may take a hit if Fed Chairman Alan Greenspan hikes interest rates, as expected.
With the European Union's common currency, the euro, languishing nearly 25 percent below its 1999 launch value, Europe's economy and its businesses also must be in the doldrums, right?Skip to next paragraph
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Chief financial officers of companies large and small across the Continent are rubbing their hands with glee at the euro's slump against the US dollar - from $1.16 to $0.92. It helps exports, discourages American competition, and boosts profits from dollar investments, they say.
For the upside of an apparent disaster, consider these three cases:
*DaimlerChrysler has seen a leap in exports - and a reported 12 percent increase in sales revenues in 1999 - as the German-based automaker says its car prices fell by as much as 25 percent in the United States in recent months.
*Pechiney, the giant French aluminum producer, which has seen the value of its product, priced in dollars, jump compared to its costs, which are priced in euros.
*Pinguely-Haulotte, a small French mechanical engineering company, is beating tough US competition in Europe because American machines are suddenly 25 percent more expensive here than they used to be - and thus a lot harder to sell.
Schrder shrugs off concern
"We shouldn't worry" about the euro's weakness, German Chancellor Gerhard Schrder told his parliament last week. One day, it will pull back, he insisted. "Until then, let us take a little pleasure from the fact that our exports are doing so well."
"The trend of a lower currency generally favors exports," DaimlerChrysler pointed out in a recent report on the euro, "and the same applies to DaimlerChrysler because the exports of our Mercedes-Benz vehicles and aerospace units are higher than our imports from the US dollar zone."
German exporters across the board have enjoyed the same "turbo effect" of the euro's fall, as the German Association of Wholesalers and Exporters called it last week, pointing to an upswing in German exports over the past three months.
As for Pechiney, each 10 percent drop in the euro's value boosts profits by 65 million euros, or about 18 percent, according to the company's acting chief financial officer Alain Pasquier.
Not only does the aluminum producer benefit from the way metals are priced in dollars, it is also reaping an accounting windfall from its overseas subsidiaries when their dollar profits are added up in euros.
"As far as we are concerned, we are not suffering from the fall in the euro," says Mr. Pasquier. "On the contrary, the effects are positive."
Even companies with no dealings overseas are reaping the benefit. At Pinguely-Haulotte, which makes equipment to lift workers and their tools high into the air, "we are delighted," exults company president Pierre Saubot.
Mr. Saubot's main competitors in Europe are American, and with the dollar's rise, their machines have gone up in price.
"It is undeniable that over the last 18 months we have gained in competitivity because of the euro," he says. "We've gone from 12 percent of market share in Europe to 20 percent ... and the monetary factor is far from being a negligible factor in that."
Tougher sell for US exporters