Euro at six months: Declining value is exporters' boon, politicians' bane
T
he euro—the single currency over will occur over the next 10 months," adopted by most of the members of he predicts. "By next year, everything the European Union—is slowly but will be in euro." surely working its way into the European Brian Hackwell, a consultant in the landscape. It's still only a conceptual cur- London offices of international consulting rency until euro coins and bills are avail- firm Chemical Market Associates Inc., able in 2002, and it's an official currency agrees. "Certainly some of the aromatics in only 11 of the 15 countries of the EU. are being priced in euro now and, inBut the euro is becoming, in the words of creasingly, for olefins, prices are being DuPont officials, the currency of busi- negotiated in euro." Prices of downness transactions in Europe. stream derivatives are following more Moreover, the decline the euro has slowly. However, other factors are more imshown against the dollar since its launch has encouraged exports. For the portant for pricing than which currency is European chemical industry, which is used, he points out. For example, conheavily exporting, that can only be good tract negotiations were made more difficult this spring because the petrocheminews. When it was introduced at the begin- cals supply situation changed so dramatining of this year, the euro was given cally between the first and second fixed rates versus member currencies. quarters when oil prices jumped sharply. At a stroke, this eliminated exchange"I can't really see that [the switch to rate worries within the countries of the the euro] makes any difference," Hackeuro-zone: Austria, Belgium, Finland, well says. 'The rate is fixed, so it doesn't France, Germany, Ireland, Italy, Luxem- really matter. What you do see is the bourg, the Netherlands, Portugal, and movement between the dollar comSpain. pared with the euro, and it's the same Since the euro's introduction, compa- effect as it would be with the dollar nies have begun converting financial against the mark." records to the euro. Large multinational And the movement of the euro against companies, in particular, have begun in- the dollar has been dramatic since its invoicing and paying in euro. And pricing troduction. It was pegged at $1.1789 per for petrochemicals, which historically euro on Jan. 4, the first working day of the has been mostly in deutsche marks, is year, and it opened last week at $1.0204. rapidly being switched into euro. And this week, it's been flirting with pariFlorent Chevrier, a consultant with ty with the dollar. For politicians and the public, there London-based consulting firm Trichem, points out that the denomination is is concern about the decline of the eu"changing slowly but surely. If you look ro's value. Partly, it's a macho political at the new contract prices—for olefins, aromatics, and so on—all are now being settled in euro The fall of the euro terms." U.S. $ per euro The process will take a little 1.20 while, he concedes. When prices are set in euro, a buyer used to working in pfennigs per kilogram 1.15 must do a mental translation of the euro figure into deutsche marks to understand the value of 1.10 the product. Chevrier sees the adoption of the euro as simplifying the mar1.05 ketplace. Although most petrochemicals and derivatives have 1.00 been priced in deutsche marks in Europe, he notes, butadiene was one chemical traditionally priced Note: Data for opening of each week. Source: European Union in French francs. 'The change-
desire to be able to boast of a strong currency; partly it's the desire to see the value of investments maintained. However, exporters have been working hard to capitalize on their good fortune: The weaker currency means their goods carry lower prices abroad, so can be sold more readily. As Matthew Moran, director of the Irish Pharmaceutical & Chemical Manufacturers Federation (ICPMF) points out, "For those companies dealing with the U.K. [not a euro country], it's a question of the relative value of the euro versus the pound." For now, he says, that balance is particularly favorable because the pound is strong. To some extent, of course, the positive impact on exports is limited because many exports from euro-zone countries are intrazone. Last year, the EU chemical industry's exports totaled $277 billion, according to statistics published by the European Chemical Industry Council. Of those exports, 60%, or $166 billion, were intra-EU. It is difficult to split out eurozone trade, but of the four non-euro-zone countries—the U.K., Sweden, Denmark, and Greece—only the U.K. is a sizable importer within the EU. But the U.K. imported only $19 billion worth of chemicals in 1998. Nonetheless, that leaves some $111 billion in exports outside the EU for the European chemical industry to aim to top this coming year, with the benefit of the lower value of the euro. Part of the euro's weakness has come from the poor economic performance in some of the countries in the euro-zone. For example, then President-designate of the EU Romano Prodi caused a stir last month when he observed that Italy risked leaving the group if it " ~ ' could not curb its inflation. It is unclear whether it would be legal for a country to leave the euro project if its economic conditions diverge widely from the singlecurrency criteria. On the other hand, there is no indication of inflation pending in Ireland, despite that economy's gross domestic product growth rate of 8.5% per year. Moreover, economic indicators in the largest euro country, Germany, seem to point to recovery, a factor that should eventually cause the euro to strengthen. "I don't see the euro collapsing," ICPMF's Moran says. "The fundamentals are too strong." Patricia Layman JULY 19,1999 C&EN
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