For several years now, the euro as a currency has known only one way – down. Recently, the decline has increased significantly. A few days ago, the price fell below 1.02 US dollars, the lowest point in almost two decades.
But why are the finances of the 19 countries that are currently part of the European Union on such a worrying path? And what are the consequences of the loss of value?
Two reasons
Experts agree that the weakness of the euro is due to two events. One possible reason is any concern about financial loss. As analysts at Commerzbank emphasize, fears of a recession are growing in Germany. Experts from Dekabank also share this opinion. In their eyes, “financial panic is spreading”.
There are several reasons for this development.
But one of the most important is the violent Russian war that is all over Ukraine. This war made the whole of Europe aware of its dependence on gas from Russia. Meanwhile, Russia has already reduced exports. If gas fails to provide energy, then the economy will collapse.
In addition, the monetary policy of the European Central Bank affects the current weakness of the euro.
Central bank results
Many other central banks have already announced that they are fighting inflation and have raised their key interest rates. For example, the powerful US Federal Reserve, is a pioneer. The European Central Bank, on the other hand, is one of the few central banks that has just announced an increase in interest rates.
In July, the prime rate rose slightly for the first time in eleven years. However, the increase was only 0.25 percent. This share is very low compared to many other central banks.
Bad timing
The major weakness of the euro has indeed come at a critical time due to inflation.. The lower this currency is, the stronger other currencies such as the US dollar become. This growth also increases the prices of goods exported to Germany.
What’s more, this policy means that already high inflation is getting worse.
As a result of this development, consumers have to pay more for their lifestyle due to the depreciation of the euro. Energy costs are high and will continue to rise in the future.
After all, it is the international custom to pay in US dollars. As the US dollar appreciates, the euro continues to depreciate. This growth also means that travel to many countries without a common currency is increasing due to the fall of the euro. Furthermore, the ECB’s fight against inflation is likely to intensify.
Who benefits from development?
One of the beneficiaries of this development is the exporting country Germany. Besides, products made in Germany are becoming more expensive in other countries due to the depreciation of the euro. It is therefore possible that an increase in the rate of exchange of money can lead to a decrease in the economy.
However, in this context it should be considered that the economic situation in many countries is progressing in a bad way as in Germany. In economic terms, foreign demand falls more than it rises. This means that the weak euro will be reduced again due to the positive effect it wants.
Predictions for the development of the euro
Parity shows a one-to-one interest rate. This ratio is very close to 1.02 at the current exchange rate of the euro to the dollar. For reference: About two decades ago, one euro was worth one dollar. In the eyes of experts, it is unlikely that the euro will reach this level again in the near future.
As experts at Dekabank say, the relationship between the two currencies is “obvious”.
Economists associated with the Landesbank Hessen-Thüringen also think that a deal is possible in the near future.
However, there are no signs of a change in the forecast so far.
How much does a euro cost?
A devaluation of the exchange rate has no special economic effect on the economy. But the impact of the brand is undeniable. As for the amount of money, economists decided to ask how much the euro will cost.
It is with this question that the symbol of economic freedom and the power of the monetary union must be given. If the value of the euro falls, the reputation of the euro in the world may also be damaged.