Theimpactofan Euro-breakdownontheUnitedStatesandthe USD-zonecountries
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One argument sometimes invoked against a dissolution of the Eurozone is the fact that the difference in parity entailed by such would be too great to be tolerable by other countries, in particular the United States. It seems that this argument doesn’t resist analysis , as we are about to demonstrate, basing ourselves on a study published in early September by the Res Publica Foundation[1].
Presently, the average exchange rate of the Dollar amounts to 1.30 USD for 1 Euro. The levels of devaluation estimated in this study, according to the various scenarii, are the following:
Chart 1
ExchangeratetotheUSDollar
Hypot-1
Hypot-2
Hypot-3
France
1,04
1,04
0,98
Benelux
1,30
1,04
1,43
Germany
1,50
1,50
1,70
Italy
0,98
1,04
0,85
Netherlands
1,50
1,50
1,43
Ireland
1,30
1,04
1,30
Finland
1,50
1,50
1,56
Austria
1,50
1,50
1,56
Spain
0,91
1,04
0,78
Greece
0,65
0,65
0,52
Portugal
0,78
1,04
0,65
Source : Sapir J et P. Murer, Les scenarii de la dissolution de l’Euro, Étude de la Fondation Res Publica, Septembre 2013, Paris,
They must be put in relation with the economic weight of each of the economies in the overall economy of the Eurozone in order to evaluate in which proportions a devaluation or a revaluation would alter the global exchange rate of the zone.
Cable 2
AverageweightoftheeconomiesintheEurozone
Weightinpercentage
France
19,32%
Benelux
3,55%
Germany
27,41%
Italy
16,68%
Netherlands
6,20%
Ireland
1,70%
Finland
1,77%
Austria
2,98%
Spain
12,77%
Greece
2,99%
Portugal
2,31%
Source : OCDE, base de données
Basing oneself on these relative weights, it is quite easy to calculate a weighted average for the various devaluation hypotheses. One arrives at the following results:
Chart 3
Average exchange rate for the Eurozone after a dissolution and the entailing devaluations
Hypot-1
Hypot-2
Hypot-3
Level for the average of the Eurozone (in US Dollar)
1,187
1,207
1,188
Devaluation in relation to the present level
-8,7%
-7,2%
-8,6%
We notice that the average devaluation of the Eurozone in relation to the Dollar would be comprised between -7.2% (for hypothesis 2, named « of the 2 euros ») and -8.6%. These levels must be compared to the variations in the exchange rate between the US Dollar and the Euro since 2007, which were far more considerable.
Figure 1
These devaluation levels are in reality perfectly compatible with the international monetary system. Nothing authorizes the statement which is sometimes heard that a dissolution of the Euro and the devaluations which this would entail would bring about “catastrophic” changes in the exchange rates. In reality, the changes induced by the crisis since 2007 (from 1.20 USD to 1.60 USD) have been considerably more important.
Kindly translated by Anne-Marie de Grazia
[1] Sapir J., et P. Murer (avec la contribution de C. Durand), Les scenarii de la dissolution de l’Euro, Étude de la Fondation Res Publica, septembre 2013, Paris, 88p.
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