Solbes plays down effect of high euro on exports to US

Date: 26/02/04

PEDRO Solbes, the commissioner for economic and monetary affairs, has played down fears that the recent spectacular rise of the euro against the US dollar might deal a hammer blow to European companies selling their goods and services abroad.

Responding to concerned MEPs, the Spanish commissioner said EU competitiveness has not fallen in line with the euro's rise once static wage levels in the spluttering eurozone economy are taken into account - even though he conceded that US citizens must spend more dollars for European products.

"The euro has undergone an appreciation of around 25% against the dollar since the start of 2003," he said.

"However, the euro-area real effective exchange rate - which is what matters for competitiveness - has only appreciated by around 8% since then, when deflated by nominal unit labour costs," he added, referring to the impact of actual wage rates paid by EU firms.

Solbes explained the benchmark real effective exchange rate is based on the evolution of the euro against a basket of currencies, weighted according to their importance in the external trade of the eurozone. It also takes into account differences in inflation rates.

"Both survey data and hard indicators confirm that the Commission services' Autumn 2003 forecast is still on track," he insisted.

"The euro-area real effective exchange rate has only appreciated by around 4.5% since the forecast was published."

Solbes added that, long term, "the Commission believes that a stable exchange is in Europe's interests".