Who's Afraid of Super Euro? - by Holger Schmieding
Despite the relentless rise in the external value of their currency, euro-zone businesses are still braving the storm.
In late 2007, net exports accounted for the entire 0.4% expansion of the euro zone's gross domestic product. And just before the common currency broke the $1.50 barrier, a major euro-zone company (EADS) secured a $35 billion U.S. defense contract against fierce competition from its American rival (Boeing). So before European politicians moan further about the exchange rate and scold the European Central Bank for saying so little about it at last Thursday's meeting, let's take a closer look at the issue. What can explain this resilience of the euro-zone's external economy? Most importantly, few regions have gained more from globalization than the euro zone.
With their focus on quality machinery, infrastructure equipment, cars and airplanes, West European companies offer a product mix well-suited to the investment boom in East Asia, the oil-exporting countries and parts of East-Central Europe. And as consumers in those countries are getting richer, the European purveyors of top-branded luxury consumer wares can also look forward to rising sales for years to come. In addition, many euro zone companies have aggressively globalized their production. This makes them less vulnerable to exchange rate shifts. Many West European countries have also turned themselves into less hostile regions for investors -- cutting taxes and loosening some of the worst labor market rigidities. Germany, for instance, is now a better place to invest and create jobs than five years ago when the euro was much weaker.
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