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Opinion

An expat's view of the falling dollar

Even Europeans are worried about this trend.

By John K. Cooley / May 21, 2008



Athens

A mere seven years ago, you could order an orange juice or milkshake at a cafe in the leafy Athens suburb where I live – and pay, at most, two bucks. No more. Like the three or more million Americans living abroad, many European and Middle Eastern users of Uncle Sam's greenbacks have watched the cost of a single euro rise from 82 cents at the euro's inception a decade ago to around $1.60, before easing a bit to around $1.55.

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The US dollar seems to have timidly begun its recovery from its drastic, five-year-long slump against the muscular euro. But what's needed now is strong support to sustain and speed up the dollar's recovery.

Directors of the European Central Bank (ECB) in Frankfurt, responsible for fiscal policy in the entire eurozone, have the ability to help the dollar by lowering the ECB's interest rates. These rates encourage investors to buy or use euros rather than dollars or other currencies. This is a difficult task where old habits die hard and the low dollar means great deals for European tourist shoppers in American cities.

But the euro's previously unchecked rise drew concern last year. Some European financial analysts put part of the blame on the huge US foreign deficit and other current weaknesses of the US economy, as well as on US exports of products like cars which have benefited from the weak dollar.

ECB President Jean-Claude Trichet, drily remarked that it would be good if financial markets would take the Bush administration's assurances that it really wants a strong dollar seriously – implying that many markets don't.

European exporters to the dollar zone suffer losses from their sale of products such as premium olive oil. Low competitiveness has brought stagnation and higher unemployment, especially in Italy and Portugal, and almost a recession in Spain.

An obstacle to dollar and general economic recovery lies in skyrocketing commodity prices. Oil has breached $125 a barrel. The OPEC oil cartel's president warns that oil could reach $200 a barrel, largely because of the market being drawn down by the dollar's slide, as the Economist magazine reported.

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