Source Pravda.Ru

Export in Dollars, But Import in Euro

Incredible: euro increase may cause great economic damage to Russia
An abrupt increase of the euro rate as compared with the dollar rate seriously slows down economic development in European countries. At the same time, prospects of this sudden euro strengthening are unfavorable for Russia as well. Analysts say, the world financial markets are currently under the pressure of a probable military operation that may be soon started in Iraq. Expectation of this “fair” war considerably increases risks and shatters the unstable balance of the basic world currencies. Investors are hastily trying to get rid of dollars, they exchange the American currency for euro and for gold which has grown in price as well. This state of things bodes ill not only for the US economy, but for Russia’s economy as well.

One euro cost 1.073 dollar on the world market early today. Results of yesterday’s trades on the MICEX fixed a historical maximum in the euro to dollar rate: the difference between the American and European currencies exceeded 2.3 rubles (dollar rate made up 31.81 rubles and one euro cost 34.14 rubles). Currency rates announced by the Russian Federation Central Bank for Friday, January 24, 2003 made up 31.81 rubles per one dollar and 34.12 rubles per one euro.

Majority of financial analysts are sure that the decline of the dollar to euro rate will continue; no doubt, this process will cause serious damages to Russia’s economy. The problem is that Russian export is traditionally calculated in dollars, and import is mostly calculated in euros. Thus, Russia’s balance of payments is changing for the worse.

There are different opinions concerning possible financial losses in the country, consequently, there are different methods to calculate these possible losses. But almost all analysts agree that losses may make up billions of dollars. Besides, it is highly likely that goods imported from Europe will rise in price; what is more, Russian retailers that traditionally calculate their prices in dollars will certainly prefer to use more expensive euro for price calculation. This process has already started in Russia. As forecasts predict, the increasing euro rate will increase cost of travelling for those Russians who prefer to spend their vacations in countries of the euro zone, or those closely connected with the European economy (Cyprus, Czechia, Croatia, Yugoslavia, Turkey). Several of Russia’s large travel agencies specializing in European tours have already announced considerable reduction or cessation of their programs. This tendency can be easily explained: potential clients are scared with high costs of European tours.

It seems that even European producers are suffering great losses as a result of euro strengthening. For majority of European countries the USA is still the basic sales market. That is why companies from France, Germany, Italy and other countries belonging to the euro zone are horrified by the speedily increasing single European currency and by the abrupt reduction in competition of European goods. Earnings of European companies are on the decline, number of workplaces is reducing. When this process is so sudden as it is now, companies fail to get ready for the changes, they don’t have enough time to find new strategies and end up losing seriously. Weaker companies can be even shut down. For instance, at the end of the past year Australia fixed a record number of bankruptcies over the last 30 years.

European experts are not yet objecting against this euro strengthening, however, they would like the increase of the rate to be smoother. Within the past year the European currency went up by 25%. But experts say it is not the limit.

Ahtyam Ahtyrov PRAVDA.Ru

Translated by Maria Gousseva

Read the original in Russian: http://economics.pravda.ru/economics/2003/7/21/64/5964_euro.html

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