EU says no pain yet from strong euro, Airbus calls current level ‘unbearable’
BRUSSELS, Belgium – Most European exporters are not yet feeling the pain of the strong euro, an EU official said Tuesday — even as aircraft maker Airbus, which sells its planes in dollars, called the level “unbearable.”
Luxembourg Prime Minister Jean-Claude Juncker, who leads monthly economy talks between the 15 nations that use the common currency, said he did not see the high euro hurting the European economy “for the time being.”
The euro reached a record $1.5912 on Thursday, which makes German cars and French champagne more expensive for American customers or forces exporters to squeeze their margins. It also has an upside for Europe because it helps ease inflation by reducing the cost of dollar-priced oil imports.
“For the time being we don’t have a too huge impact on the real economy,” Juncker said, but refused to say what level would hurt European exporters. “The export sector is developing quite well. The moment will come where the exchange rate level will start to cause serious harm to the European economy.”
Record sales figures from Europe’s biggest automaker Volkswagen AG show the trend. VW said Tuesday it saw its best-ever quarterly car sales in the first three months of this year, despite the dampening effect of the exchange rate. Sales to the U.S. fell slightly, though that was more than offset by surging demand in China and Brazil.
Trade figures from last year show that euro nations, which include France and Germany, saw sales to the U.S. and Japan slip slightly last year — but increased exports to most other major trading partners last year.
But companies that rely on dollar-denominated sales — such as Airbus — are feeling considerably more pain.
The strong euro is a “sword of Damocles” starting to fall on the company, said Louis Gallois, chief executive of Airbus’ parent European Aeronautic Defence & Space Co.
“We are at levels which are becoming unbearable,” he said, warned that it could force the company to shift more of its costs into dollars by moving production outside of the euro area and making acquisitions in dollar-based countries.
Gallois said he wants to transform EADS North America — part of a consortium that topped Boeing Co. to win a $35 billion contract with the U.S. Air Force — into an “enduring supplier to the Pentagon.” That means meeting U.S. security requirements and gaining strength through acquisitions and investment in sites, he said.
For Airbus, which sells its planes in dollars while many of its costs are in euros, each 10-cent rise in the euro against the dollar costs 1 billion euros ($1.59 billion).
The strength of the euro also hit investor confidence in Germany, the biggest economy that uses the currency and the world’s biggest exporter. The closely watched ZEW survey showed an unexpected decline this month as rising inflation, the euro’s high level and high oil prices dashed expectations.
Juncker said he was confident U.S. officials realized that a strong dollar was in the interest of the American economy.
But the weakness of the dollar does make U.S. exports more attractive to other nations.
Juncker also said he hoped that currency traders were listening to comments made by the world’s seven leading industrial nations at talks in Washington last weekend, and pay more attention to long-term economic trends rather than speculating on short-term data.
“I sincerely hope that in a certain amount of time from now financial markets (would be) … stepping away from one way bets and they are taking into account longer perspectives, economic fundamentals, and that they are less driven by short-term economic information.”