Launched as Europe’s answer to the dominance of the U.S. dollar over the last
half-century, the Euro has continued to decline since its debut in January 1999,
leaving some area companies struggling to make up declines in profit margins.
Issued by the European Central Bank in Frankfurt the one size fits all monetary
policy is creating what economists call a continental divide, with some European
countries refusing to jump on board and other countries struggling to keep up.
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But for American companies that either export to or import from European countries
the result is being felt in quarterly and annual reports.
For example, the North Kingstown-based Brown & Sharpe, in its most recently
published SEC directed quarterly report, devotes a whole section to the impact
of the Euro on overseas business. The report was for the quarter that ended
June 30.
For company officials the introduction of the Euro "presents substantial
risks." According to the report, those risks include, "competitive
implications of conversion resulting from harmonization of pricing policies
and practices; possible increased costs associated with the conversion; and
the ability to modify existing information systems on a timely basis, if at
all." Company officials declined to comment any further on the impact of
the Euro. Brown & Sharpe specializes in the design and production of precision
measuring devices.
According to local economist Gary Ciminero, many of the state’s companies are
facing the same types of risks.
"U.S. exporters are at a considerable disadvantage with the Euro and its
decline," he said. "Rhode Islanders do a lot of trade with Europe
and we are going to pay quite a price in terms of competitiveness."
While the European Commission suggests that the concept of a single currency
is historical, its modern impetus came with the establishment of the European
Union in February of 1992, which set the criteria to determine member states.
In the winter of 1995 the European Council decided it would establish the Euro
in three stages. Phase A began in 1998 when the council designated who would
participate. However, two countries, the United Kingdom and Denmark immediately
opted not to accept the Euro. The other countries in the European Union are
France, Germany, the Netherlands, Belgium, Italy, Austria, Spain, Portugal,
Sweden, Finland, Greece, Ireland and Luxembourg .
"There are a whole series of stipulations and requirements for each country
to join, " Ciminero said. "Euro has a locked rate of exchange among
11 countries and for some countries getting involved would reduce the rate of
their currency."
Phase B of the plan was the introduction of the Euro on January 1, 1999. Now
almost two years later, despite efforts by the European Central Bank, the value
of Euro has dropped to nearly 85 cents on the U.S. dollars.
Phase C of the plan, set to begin on Jan. 1, 2001 will mark the introduction
of the actual currency, Euro notes and coins.
"It’s an experiment that hasn’t happened before," Ciminero said. "No
one knew what was going to happen, and I don’t think anyone knows now."
He added that The European Central Bank has continued to raise its key interest
rate setting to offset the fall in value, but is still way below the United
States’ key interest rate setting of 6.5 percent.
In recent weeks, the European Central Bank has again tried to bolster its falling
Euro through buying Euros and selling them as dollars. But according to Ciminero,
this too could have little impact.
"Buying and selling tends to raise the exchange rate," Ciminero said.
"But if American business thinks it’s only a temporary solution, then it
will have no impact at all."
Many area companies are feeling the effects of the experiment because a falling
Euro means that companies earn less when sales in Europe are converted.
"It presents more transparency when there is only one price and all the
major business trade is done in the Euro," Ciminero said. "In the
past, countries could play off of another country to gain export advantages,
better pricing demands consideration but that is no longer."
Cambridge, Mass.-based Polaroid Corp., reported a 16 percent decline in European
sales compared to last year’s third quarter and a decline of five percent adjusted
for foreign exchange and discontinued businesses.
Nancy Childs, a company spokeswoman said in a statement that Polaroid is working
to offset the unfavorable effect of the decline in the Euro with cost savings.
GTECH officials said the Euro has had no major impacts on the company’s operation.
Robert Vincent, vice president of corporate communications for GTECH, the lottery
company based in West Greenwich said, "a company like GTECH has to use
all the financial tools available to plan. We are certainly actively managing
the risks, but this is not anything new for us."
At the heart of the issue, Ciminero said, is Europe’s inability to grow economically.
"Unless the basic economy goes up, it seems the Euro will continue to decline,"
he said. "It also sets off an inflation and right now that’s what is happening."
According to Ciminero, though the Euro was in essence created to provide a stronger
base from which European companies could compete, it is going to mean more declines
for American companies over the coming months.
"We will be served up over the next few months," he said. "Like
a mantra over and over again we are going to hear about this. The U.S. is now
running an enormously large foreign trade budget. Our inability to compete with
local European firms will result in large and hemorrhaging foreign trade deficits."
