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Does a weak Euro signify poor competitiveness of the Euro zone?

  • Competitiveness
  • Published:
Intereconomics

Abstract

The pronounced decline in the euro’s exchange rate since the currency’s launch at the start of 1999, especially against the US dollar, has rekindled the discussion surrounding the competitiveness of the euro zone. This marks quite a shift of focus within just a short period. When the new monetary union came into being, the emphasis was on the increased significance of the corresponding economic zone, given its economic muscle and its prominent position on world markets. This was taken to indicate that the EMU economies were highly competitive. On the other hand, the drop in the euro’s value since its launch is said by many to reflect a poor competitive position. This article will examine some possible explanations for the depreciation of the euro against the dollar, focussing on the competitiveness of the euro zone, particularly relative to the USA, by applying selected indicators.

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References

  1. Cf. European Central Bank (ECB): The nominal and real effective exchange rates of the euro, ECB Monthly Bulletin, April 2000, pp. 39 f.

  2. Cf. Enrique Alberola, Susana G. Cervere, Humberto Lopez, Angel Ubide: Global Equilibrium Exchange Rates, Dollar “Ins”, “Outs”, and Other Major Currencies in a Panel Cointegration Framework, IMF Working Paper, presented at the Deutsche Bank conference on Equilibrium Rates of the Euro, March 2000, pp. 23 ff.

  3. Cf. Stephan Schulmeister: Die Kaufkraft des Euro innerhalb und außerhalb der Währungsunion, study by Österreichisches Institut für Wirtschaftsforschung for the Austrian Federal Chamber of Labour, February 2000, pp. 30 f.

  4. Prices of internationally traded goods are often used as a means of measuring the level of integration in product markets (cf. Bernhard Fischer: Globalization and the Competitiveness of Regional Blocs in Comparative Perspective, HWWA Discussion Paper No. 50, 1998, p. 9).

  5. Cf. OECD, Main Economic Indicators, current year.

  6. Cf. CEPS: Quo Vadis Euro?, pp. 60 f.

  7. Cf. Jörg Clostermann, Bernd Schnatz: The determinants of the Euro-dollar exchange rate, Deutsche Bundesbank, Discussion Paper 2/00, May 2000, p. 13 f.

  8. Cf. Eurostat: Panorama of European Business 1999. EU businesses and the challenges of the years’ 2000 [sic], press release dated 30th May 2000.

  9. On the methodology of these comparisons, see Nancy Lane: Methodology and Principles of Analysis, in: IMD: The World Competitiveness Yearbook 1999, pp. 48–58.

  10. For an international comparison at the employee level, cf. Jörg Hinze: Relation zwischen Bruttoarbeitskosten und Nettolöhnen, HWWA Report No. 202, Hamburg 2000, pp. 62–71.

  11. Cf. Michael E. Porter, Gregory C. Bond: Innovative capacity and prosperity: the next competitiveness challenge, in: WEF: The Global Competitiveness report 1999, pp. 54 f.

  12. IMF: World Economic Outlook, May 2000, pp. 18 f.

  13. Horst Siebert: How competitive is Europe’s labor?, in: WEF: The Global Competitiveness report 1999, pp. 86–93.

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Authors and Affiliations

  1. Hamburg Institute of International Economics (HWWA), Germany

    Jörg Hinze

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  1. Jörg Hinze
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Hinze, J. Does a weak Euro signify poor competitiveness of the Euro zone?. Intereconomics 35, 183–190 (2000). https://doi.org/10.1007/BF02930260

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