Should The Financial Crisis In Europe Worry US Exporters?

Carnot Sylvestre, MS

Much has been reported lately about the financial collapse of Ireland where the government is under pressure from the European Union to take urgent austerity measures to reduce spending and balance its budget. Rising unemployment and the inability of the country to meet its debt obligations are causing investors to stay away from the Irish bond market.

What is happening in Ireland is reminiscent of what Greece experienced just about a year ago and what pushed France, England, Spain and Portugal to take measures such as reduction in social expenses, increasing taxes and extending the retirement age to which citizens have responded at times with violent demonstrations in the streets of Paris, London, Madrid, Lisbon and other major cities.

Prior to this latest crisis in Europe, the dollar was considerably weak in comparison to the euro; two months ago the exchange rate for 1 euro was about $1.40. The weaker dollar meant that US goods were affordable to European Union consumers and American exporters were benefiting from the opportunity. The current financial turmoil in Europe is putting a downward pressure on the euro which is now trading at $1.33; this means that US goods are now more expensive and if the trend continues, American exporters will have good reasons to worry.

The silver lining is that the EU leadership recognizes the urgency of the problem; members like Germany and France are working diligently with Brussels to find sustainable solutions to the crisis. Already, an 85 billion euro bailout package for Ireland is set to be approved this Sunday by the European parliament, and similar solutions are in the works to help Spain, Portugal, and other weaker euro zone economies. German chancellor Angela Merkel and French president Nicholas Sarkozy have this week made statements to boost confidence in the euro and EU financial markets as well to reassure investors that the current financial crisis will soon be under control. Chancellor Merkel stated in a speech in Berlin this past Thursday that " The European Union will come out of the current turmoil much stronger".

Greece was able to reorganize its chaotic financial situation thanks to the adoption of austerity measures and a comprehensive financial help package from the European Union. EU members like Ireland, Spain, England, and Portugal among others will also get the help they need and survive the current crisis they are experiencing. The economies in Europe will soon stabilize, making it possible for the euro to regain any lost ground against other major foreign currencies and for US exporters to continue to find welcoming markets in the old continent. However, US exporters should not be complacent and place their hope in penetrating European markets solely on the weakness of the dollar; they should boost their R&D , increase and improve the quality of the products in their pipelines so they can become more competitive and better able to sustain future turmoil in European or any other foreign markets.