Thanks to the European Central Bank’s decision to pump at least 1.1 trillion euro into European bonds, the value of the euro has crashed. From 1.38 dollars per euro, the euro is now valued at 1.13 dollars. In theory, this means goods manufactured in the Eurozone are much much cheaper. Well, not so fast.
In reality, rank and file American consumers really don’t buy a lot of low-end or mid-end European consumer goods. Instead, the bulk of consumer goods preferred by Americans from China. For mid-end cars, most of the vehicles we buy are built on US soil by Japanese or other foreign manufacturers. This is the paradox of the crashing euro-it won’t benefit US consumers all that much. The big winners of the euro’s crash against the US dollar are US manufacturers that buy equipment or raw materials from Europe.
What about luxury goods? Americans tend to prefer European brands for luxury goods. Surely, the price of a BMW would be more friendly now that the euro has crashed, right? Wrong. Since the US economy is relatively healthy compared to Europe, there’s still a lot of demand for luxury goods. Since the demand for upper-end products is fairly stable thanks to the US economic recovery, European companies don’t feel they need to cut prices. They don’t need to. The demand is already there.
Given this market reality, the euro crash might actually turn out to be a boon for producers of luxury European goods. Instead of reducing the value of their sales, the lower euro actually ends up putting more money in their pockets because the dollar price tags of their wares haven’t changed.
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