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Question: What the heck is going on with the euro?

by dryfly Mon Jun 13th, 2005 at 08:41:14 AM EST

Lots of folks on the NAFTA side of the pond are trying to figure out...

(1) What the heck is going on with the euro?

And...

(2) What effect will it have on the EU-NAFTA trade balance?

This was written up by Calculated Risk on Angry Bear on Sunday...


The thing that is surprising is that even as the euro got stronger over the last few years... the deficit with US/NAFTA Zone got larger... this contradicts 'economic logic'...

There are some possible explanations...

(1) long buy cycles... long term agreements signed before the currency shift so the sales continue even as the price fluctuates.

(2) the European products coming into NAFTA ZONE have few alternative substitutions - so you either pay the price or go without

Both (1) & (2) are common for capital goods & industrial products. But there is another possibility...

(3) protest substitution... are euro zone buyers so upset with Washington that they punish Peoria & Detroit too?

My guess is all three are happening to some degree. What I'd like to know (from euro zone folks especially) is what they think and see in their own daily lives...

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What does the US buy from Europe?
by Colman (colman at eurotrib.com) on Mon Jun 13th, 2005 at 08:45:28 AM EST
For example... I used to own a Ford that had a Peugeot transmission, a Mazda engine and was assembled in Mexico... as far as I could tell the only American parts were the cockpit electricals & body work (stampings)...

I am in US factories often and see most machine tools coming from either Euroland or Japan (plus a few knock offs from China - too unreliable yet to be common)...

I also see components like precision screw machined parts and such... though those suppliers are seeing fierce competition from Asia right now. The strong euro did not help them...

There is a whole lot more coming here from Europe than many 'average Europeans' realise... more than many 'average Americans' realise also...

"On the Internet, nobody knows you're a dog." - Peter Steiner

by dryfly (jjwhodat at hotmail dot com) on Mon Jun 13th, 2005 at 08:55:19 AM EST
[ Parent ]
I guess my question was whether they were necessary goods that weren't easily substitutable by other goods. If it takes three years to tool up to produce machine tools outside the EU, you have to keep buying them until an alternative source comes on line.

I'm guessing that stuff bought from the EU is either necessary or a luxury good. Neither responds to price increases in the normal way.

by Colman (colman at eurotrib.com) on Mon Jun 13th, 2005 at 09:01:49 AM EST
[ Parent ]
I don't have time to look up figures right now. I should be writing, not wandering around the net.
by Colman (colman at eurotrib.com) on Mon Jun 13th, 2005 at 09:02:49 AM EST
[ Parent ]
A repeat diary - on the first day. Amazing!

(Don't worry, I am just being snarky; you are not writing about the same thing as Colman below in the list. I'll take it as a good sign for the site...)

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Jun 13th, 2005 at 08:50:26 AM EST
My question on the euro actually came up in meetings this last week (I'm a rep for suppliers to large North American mfg'ers)...

I've worked with European suppliers before and folks at that meeting asked me - what the heck is going on... my answer was... "Beats me?"

I was actually surfing dKos, A Bear and other sites all weekend trying to find out... get a feel for the trend...

Maybe your new readers can help... thanks for the site...

"On the Internet, nobody knows you're a dog." - Peter Steiner

by dryfly (jjwhodat at hotmail dot com) on Mon Jun 13th, 2005 at 09:00:02 AM EST
[ Parent ]
This is certainly a topic that I will cover in future posts. There were some big articles in the FT at the end of last week about the euro. I commented on one narrow bit in a post which you can find downthread on this site, but there were lots more. I've seen another article that I can probably digest more easily and will comment on that soon.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Jun 13th, 2005 at 09:40:35 AM EST
[ Parent ]
.
I would be interested how much of the goods are military goods - contract agreements for NATO members buying US fighter planes, etc. and the reciprocal contract agreements to have parts manufactured in old Europe for the US corporations.

USA WELCOME: Make Yourself Known @BooTrib aka lost treasure of dKos

'Sapere aude'

by Oui (Oui) on Mon Jun 13th, 2005 at 10:34:21 AM EST
[ Parent ]
I would be interested how much of the goods are military goods - contract agreements for NATO members buying US fighter planes, etc. and the reciprocal contract agreements to have parts manufactured in old Europe for the US corporations

yup... been there...

The buzz word for these kinds of arrangements is 'offset'... Company X of USA sells a death machine to the military of some other country...  but the gov't of the country buying the weapons insists company X must then OFFSET some percentage of the cost by buying product produced in that country.

Ironically it doesn't have to be related products or even components of the weapon system... could be a COMPLETELY unrelated transaction... For example, Lockeed Martin might sell France jet fighters but then agree to buy something in return (maybe 5% of the value of the deal or something)... They might try to buy components or parts or whatever... if not wine would do then LM would resell it to a domestic US broker to recover the cash...

That is an extreme and VERY UNLIKELY example... especially between too large countries like France & USA... However I have heard of these kinds of things happening between Israel & the US that were just as strange. Other countries too...

It would not shock me to see 'offset' contracts between some of the newer & smaller EU members and the US... especially when/if Turkey, Ukraine, Croatia and such join.

"On the Internet, nobody knows you're a dog." - Peter Steiner

by dryfly (jjwhodat at hotmail dot com) on Mon Jun 13th, 2005 at 01:28:37 PM EST
[ Parent ]


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