News / Economy

EU Commission Predicts Euro Will Get Even Stronger

FILE-  euro currency in the regional central bank in Bremen, Germany.
FILE- euro currency in the regional central bank in Bremen, Germany.
Reuters
The euro will appreciate at a record pace this year and continue to gain in value in 2014, the European Commission predicted, a spiral that could hamper the currency bloc's export-driven recovery.
 
A stronger euro, which despite a recent slide is still up nearly six percent against the U.S. dollar in the last four months, makes the euro zone's exports more expensive and could dampen the bloc's recovery from its long recession.
 
On Tuesday, the Commission cautioned that it saw the 18-nation single currency making further gains.
 
It forecast a rise of 5.8 percent against a dollar-denominated group of countries this year and another 0.9 percent increase next year.
 
Such a rise would outstrip the jump in the euro's value in 2009, before the bloc's sovereign debt crisis caused the currency's value to plummet.
 
Italy's finance minister called on the European Central Bank to cut interest rates to a new record low to try to reverse the euro's rise, while several large French companies have warned the euro's strength is affecting their earnings.
 
Asked about whether the ECB should consider a rate cut, the EU's top economic official declined to comment directly.
 
“The ECB stands ready to act ... I don't want to cross the ECB's independence by stating the obvious,” EU Economic and Monetary Affairs Commissioner Olli Rehn told a news conference.
 
The ECB's main interest rate is already at a record low 0.5 percent and a majority of traders polled by Reuters on Monday expect the central bank to keep it unchanged at a policy meeting on Thursday.
 
However, ECB President Mario Draghi is expected to signal a readiness to ease policy further after euro zone inflation fell to 0.7 percent in October, its lowest level in almost four years and well below the bank's target of just below 2 percent.
 
Longer-term risks
 
At a time of record unemployment, strong exports in southern Europe, particularly in Spain, are the engine of recovery.
 
In its latest forecasts, the Commission curtailed its expectations for growth next year to 1.1 percent from an earlier prediction of 1.2, although it made no mention of the euro's value and said it expected exports to continue to grow despite a stronger currency.
 
But economists warn that a persistently high exchange rate is a threat to the bloc's long-term growth potential.
 
Factories in France, the euro zone's second-largest economy, are seen as one of the most affected areas because high labor costs and lower productivity mean they have less room to withstand the pressure that comes from more expensive exports.
 
That contrasts with Germany, Europe's biggest exporter, that has so far remained silent about the strength of the euro because German manufacturers have more ability to raise productivity and quality and cut costs.
 
“When productivity or the quality of products cannot be raised to offset the competitive pressure created by currency over-valuation ... profit margins cannot but fall,” said Gilles Moec at Deutsche Bank.
 
“We see this already at play in France,” he said.

You May Like

Obama: I Will Do 'Everything I Can' to Close Guantanamo

US president says prison continues 'to inspire jihadists and extremists around the world' More

Sierra Leone Educates on Safe Ebola Burials

Also, country is improving at rapid response to isolated outbreaks, but health workers need to be even faster, officials say More

Religion Aside, Christmas Gains Popularity in Communist Vietnam

Increasingly wealthy Vietnamese embrace holiday due to its non-religious glamor, commercial appeal More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
US Decision on Cuba Underscores Divisions Among Miami Cubansi
X
Sharon Behn
December 19, 2014 9:34 PM
For decades, older, more conservative Cubans have been gathering at Café Versailles on the corner of Calle Ocho to eat Cuban food and talk politics. After hearing of President Barack Obama’s decision, a number of them gathered in front of the café with posters to protest. VOA's Sharon Behn reports on the situation.
Video

Video US Decision on Cuba Underscores Divisions Among Miami Cubans

For decades, older, more conservative Cubans have been gathering at Café Versailles on the corner of Calle Ocho to eat Cuban food and talk politics. After hearing of President Barack Obama’s decision, a number of them gathered in front of the café with posters to protest. VOA's Sharon Behn reports on the situation.
Video

Video Three Cities Bid for Future Obama Presidential Library

President Barack Obama still has two years left in his term in office, but the effort to establish his post-presidential library is already underway. The bid for the Obama Presidential Library is down to four locations in three states -- New York, Hawaii, and Illinois. As VOA’s Kane Farabaugh reports, each of them played an important part in the president’s life before he reached the White House.
Video

Video Cuba Deal is Major Victory for Pope’s Diplomatic Initiatives

Pope Francis played a key role in brokering the US-Cuba deal that was made public earlier this week. It is the most stunning success so far in a series of peacemaking efforts by the pontiff. VOA religion reporter Jerome Socolovsky has more.
Video

Video Fears of More Political Gridlock in 2015

2014 proved to be a difficult year politically for President Barack Obama and a very good year for the U.S. Republican Party. Republican gains in the November midterm elections gave them control of the Senate and House of Representatives for the next two years -- setting the stage for more confrontation and gridlock in the final two years of the Obama presidency. VOA National Correspondent Jim Malone has a preview from Washington.
Video

Video Sudan School Becomes Target of Aerial Attacks

The school dropout rate is at an all-time high in Sudan's South Kordofan state because many schools have been destroyed during the three-year civil war between the government and SPLA-N rebel forces. Adam Bailes visited Sudan's Nuba Mountains' region and reports many children are simply too scared to go to school
Video

Video VOA Reporter Tours Devastated Peshawar School

Islamist militants wearing military uniforms and strapped with explosives attacked a military run school Tuesday in the northwestern Pakistani city of Peshawar. At least 141 people were killed in the horrific attack, most of them young students. VOA reporter Ayaz Gul visited the devastated school and attended the funeral of the principal who courageously tried to save her students from the deadly attack.
Video

Video Nigerians Fleeing Boko Haram Languish in Camp Near Capital

In its five-year effort to impose Islamic law in northeastern Nigeria, the Boko Haram extremist group has killed thousands of people and forced hundreds of thousands to flee. Some of those who ran for their lives now live in squalor on the edges of the capital, Abuja. Chris Stein reports for VOA.
Video

Video Aceh Rebuilt Decade After Tsunami, But Scars Remain

On December 26, 2004 there was an earthquake in the Indian Ocean so powerful it caused the Earth’s axis to wobble a few centimeters. Onshore on the island of Sumatra, the resulting tsunami was devastating. A decade later, VOA Correspondent Steve Herman reports from Banda Aceh, Indonesia, where although there is little remaining evidence of the physical devastation, the psychological scars among survivors remain.

All About America

AppleAndroid

World Currencies

EUR
USD
0.8143
JPY
USD
119.23
GBP
USD
0.6390
CAD
USD
1.1596
INR
USD
63.304

Rates may not be current.