General News / July 12, 2022

What does the drop in the euro’s value mean?

Image: Unsplash
General News / July 12, 2022

What does the drop in the euro’s value mean?

Words: Ellen Kenny

It may just be a number, but the implications of the euro drop are disastrous.

The euro fell to the same value as the dollar today for the first time since 2002. No big panic, just a major recession looming over us all.

Although the euro has now risen slightly to 1.01 dollars, this is the largest and fastest drop in value the euro has faced in many years.

This shift means European companies and consumers will pay more for the goods and services they import. European exports, meanwhile, will become immediately cheaper in international markets.

During the global 2008 recession, the euro was still worth 1.28 dollars at its lowest point.

The euro has experienced a sharp loss in value since early February when it was worth over 1.13 dollars.

The sudden drop in value has led to record breaking inflation rates across Europe this summer. These economic shocks are expected to increase as war wages on in Ukraine.

Image: Google

You might think to yourself, what’s the big deal? It’s all just small numbers at the end of the day. But according to the experts, it’s a lot more concerning than that.

To match the euro’s drop in the value, the European Central Bank have announced an increase in interest rates across Europe by 0.25 in August and 0.5 in September. This rate hike will increase the repayments on tracker and variable mortgages. So if your landlord has a tracker mortgage on the property where you will, your rent will go up.

And according to expert economist Robin Brooks, “markets are made up of human beings who happen to care about levels, which gives parity a special psychological significance, not least since we haven’t seen this in 20 years. This is a big deal.”

A “sell the Eurozone” mentality has developed among investors due to growing economic uncertainty. Uncertainty discourages investment, and a lack of investment encourages uncertainty.

The dollar is looking a lot more attractive these days. So, as more investors rush to the US to hedge themselves against European uncertainty, the euro’s value will drop more. If it continues to drop, products will only get more expensive. As if they haven’t enough already.

This value drop comes on the same day that the EU has finally agreed to let Croatia adopt the euro themselves. Welcome to the club! You’ll hate it.

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