Jean-Claude Juncker, chairman of the European Central Bank (ECB), yesterday sought to reassure markets that despite a sharp fall, the Euro was a credible currency and inflation would remain under control.
Markets have been selling the Euro on concern that Euro zone austerity measures will damage economic growth in the 16-country currency area. The austerity steps are a reaction to market fears about the risk of a debt default in some Euro states, notably Greece, Spain and Portugal.
Some economists have said that, while the Euro zone’s recent $US1 trillion safety net for the debt obligations of its members solved near-term insolvency risk; it does not resolve the longer-term problem of huge public deficits and welfare programs.
The Euro has fallen nearly 7% cent against the dollar this month, hitting a four-year low on May 17. It has lost almost 15% for the year – 18% in the last 6 months – making it the worst-performing major currency so far in 2010. The Euro is down 24% from its record high against the dollar in July 2008. The plunging Euro is also affecting Asia-Pacific currencies adversely such as the Australian dollar.
All this is scary stuff for exporters hoping to grow sales in Europe. Yet we should remember that the Euro debuted in January 1, 1999 at US$1.17, even less than today. Two years later Greece became the 12th country to convert its currency to the Euro. Has the Euro been “over-valued” the past few years? In short, yes.
Europe has weathered many crises over the millennia, and it will withstand this brief currency fall. The European Union is a political union of 27 countries with a dynamic economy of over 500 million people. The EU generated about 28% of the nominal gross world product in 2009. Do you think this economy is going anywhere but upward?
Despite a tumbling Euro, the Greek debt crises, and rising U.S. unemployment, U.S. exports increased 3.2% in March. This indicates that worldwide economic growth and demand is expanding. Ted Wieseman, an analyst at Morgan Stanley Research, said “Europe’s down but the other regions are accelerating” in Asia, the Middle East and Latin America.
U.S. exporters have reason to remain sanguine. Rather than a scattered approach to exports, companies should identify a few high potential international markets and focus their resources in a strategic marketing approach. They should adjust their cost structure and ensure that pricing in foreign markets is competitive, and that local consumers perceive they are receiving value. Export pricing should be seen as “marginal,” that is, all fixed costs need not be included in final pricing as they are in domestic pricing. Finally, U.S. exports should be “localized” to the extent possible, always remaining in compliance with local packaging and ingredient regulations.
U.S. exporters are very well-positioned to exploit a recovering world economy, and with preparation, can enjoy phenomenal success in global product markets.
 Business Spectator, May 18, 2010