As the euro hits a 12-year low against the dollar, is a weak currency positive for the Eurozone?

Danae Kyriakopoulou is an economist at the CEBR, says Yes

As far as economic silver bullets go, a sharp depreciation in currency, when economies are suffering from both slow growth and dangerously low inflation, is a pretty good candidate. A weaker euro makes Eurozone products cheaper, both abroad and at home (where they compete with imports). As exports contribute positively to the economy, currency depreciation boosts growth. And with euros now weak against sterling, more holidaymakers will be heading to the Costa del Sol this summer. In economic terms, this is great news for Europe’s south. But even though euro weakness is positive, it is not a panacea. The gains will be limited, as half of Eurozone trade is internal anyway. Weak global demand will limit the scope for Eurozone exporters to sell their wares, and the region is already running a fairly large trade surplus. So while policymakers should welcome the euro’s fall, a sustainable recovery will only come from implementing structural reforms.

Shaun Richards is an independent economist, says No

The Rolling Stones once sung “you can’t always get what you want”, and that summarises the position of the Eurozone right now. I could also have said Bad Timing is appropriate. Because the euro has fallen sharply since mid-December, but so have commodities, and here the euro’s weakness has created some problems. Over the past year, the price of a barrel of Brent crude oil has fallen by 48 per cent, but that has been partly offset by the euro falling 24 per cent against the US dollar. Since oil is priced in dollars, half the gains from lower oil prices have been lost due to euro weakness. There is a similar effect with copper prices, which have fallen by 13 per cent over the past year, but have actually risen in euro terms – due to the fact the currency has weakened nearly twice as much. So while a lower euro is an outright gain in economics textbooks, in practice euro weakness has eroded the gains from lower oil and commodity prices.

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