A strong euro is good for Europe - by Peter Gumbel
Ever since the dollar began to fall against the euro in 2002, a chorus of government officials, economists and business executives around Europe - from the CEO of Airbus to the Prime Minister of Luxembourg - has complained publicly and in near-apocalyptic terms about the greenback's decline. Their argument has been that the tumbling dollar makes European goods less competitive on world markets and thus poses a big threat to the European economy overall.In fact, much of the available evidence suggests that a strong euro has done more good than harm for Europe. Far from weakening European competitiveness, it has hastened a major restructuring of industry that has enabled firms from L'Oréal to BMW to compete more effectively in worldwide markets. They and many others have focused on expanding in fast-growing markets at the same time as they have kept an iron grip on internal costs, and have racked up strong profits as a result. Moreover, the existence of the euro itself, which is now used by 13 European Union countries, has sheltered the European economy from much of the foreign-exchange turbulence, since a big majority of E.U. commerce is now with other E.U. countries.
The price of oil, for example, has risen almost five-fold in dollar terms since 2002, but "only" three-fold in euro terms. That's still a huge increase, of course, but less than it could have been.German exporters from car manufacturers to machine tool producers have realized that they cannot compete on price alone. So they have focused on quality, on marketing, on global expansion and on servicing their customers' needs wherever they are, even as they have sought to whack costs out of their system. Olaf Wortmann, an economist at the German Engineering Federation, whose members - largely machine-tool manufacturers - have boosted production by a blistering 39% in the past five years, says the last time business boomed so strongly was back in the late 1950s. The firms' biggest problems these days, he says, aren't caused by exchange rates but by production bottlenecks - currently, the industry is running its plants at 92% capacity.
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