Commentary: The euro is sending alarm signals

Created: 07/09/2022, 1:00 p.m

By: Georg Anastasiadis

The European common currency has fallen to its lowest level in 20 years against the US dollar, and the euro is also cheaper against the Chinese yuan than it has been in seven years.

A commentary by Georg Anastasiadis.

This has not been the case for 20 years, when the European common currency was introduced as cash: on Friday, one euro was worth exactly one dollar – and the trend is falling.

Within a year, the euro has lost around a quarter of its value against the US currency.

The European currency also fell to a seven-year low against the Chinese yuan.

The weakness of its currency is a major problem for Europe, as it makes imports from the rest of the world more expensive.

This drives the already high inflation and causes the German trade balance to tip into the red because the global exchange conditions are changing to our disadvantage.

To put it simply, we get much less oil for an exported BMW than before.

As if under a magnifying glass, problems are becoming visible in Europe's euro exchange rate, such as the chronic weakness in growth and – as a response to this – the dangerous monetary policy of the ECB.

However, the greatest cause for concern at the moment is the energy crisis.

Global investors are fleeing Europe, fearing the continent's gas supply will be cut and the economy thrown into chaos.

The world power America, on the other hand, has taken precautions and is (more) independent of foreign despots thanks to its energy mix including nuclear and fracking gas.

The citizens of Europe are now paying the price for the grave mistakes made by their governments over the past two decades.

Correcting this is a task for generations that requires great effort and will not be possible without a noticeable loss of prosperity.