Euro set to continue slide
The Hague – Even though the euro’s downward spiral against the dollar was brought to a standstill on Wednesday and even somewhat reversed, doubts still linger about European Central Bank (ECB) president Mario Draghi‘s quantitative easing programme. This policy, which amounts to the printing of money worth €1.1trn, is said to be the cause of the euro’s slump.
On Wednesday, the euro hit the lowest point since 2003 against the dollar at $1 0599. Draghi’s controversial policy kicked in on Monday.
The euro already started falling last summer (in the northern hemisphere), when Draghi announced his plans. Since last May, the euro has lost 35% of its value.
For South Africans planning to travel to Europe, this is good news as it will make their trip somewhat cheaper.
Experts of the Deutsche Bank, quoted in the German daily Die Welt, expected that the euro’s downward turn would not stop here.
They said that the euro could very well lose another 22% and reach 85 eurocents against the dollar.
Economist George Saravelos was quoted as saying that the eurozone could experience the biggest capital flight in history. Capital is already flowing out, he said, and the fact that Europe exported much more than it imported (which, in normal circumstances would drive the euro upwards), was an indication of this.
He said the eurozone could lose about €1bn per year.
Draghi’s purpose was to turn the negative interest rate around. In several European countries there is practically no inflation or even deflation. This has the effect of discouraging investment and making an economic recovery after the crisis years difficult or perhaps impossible.
In itself a cheaper euro would stimulate exports, but if the euro falls too much this could prove highly negative for the European economy.
Source: fin24 – Euro set to continue slide
