A Review on an Article: If the European Economy Is So Shaky, Why Is the Euro So Strong?

A Review on an Article: If the European Economy Is So Shaky, Why Is the Euro So Strong?

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The article on the Economist, “If the European economy is so shaky, why is the euro so strong?” by R.A is explaining why and how the value of euro is still remaining strong, even though the economy of Europe is going through many struggles. Throughout the article, it is discussed how appreciation of a currency may not always be good improvement and what negative consequences the appreciation of a currency can lead to. The article also states how the moves of the exchange rates cannot easily be explained and goes into further details about the euro exchange rates.
The article starts by stating that recently the euro zone has been facing a good trend of improvement in terms of economy and managed to pull out of the recession. In the euro zone, the unemployment is decreasing and worries regarding the crises are disappearing by the time. However, there is the fear of deflation. As the article continues, it explains how appreciation of a currency can cause problems that are very significant and serious.
In order to better explain this point, an example of the US cars is given in the article; if US dollar appreciates compared to euro or yen while the price of the cars do not vary, it will be more expensive for the countries that uses euro or yen as their currencies to purchase US cars. As a result of this appreciation in the value of dollars, the number of cars exported will decrease in the United States. This is exactly the same reason why Europe has a fear for a strong currency; the strong euro currency makes European goods and services more expensive to other nations and thus, lowers the amount sold abroad. Also, since the households, firms and government is cutting back, the development and growth of the economy is highly dep...


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...s products and services in demand throughout the globe, hence the euro's strength, at least as determined by the "demand" side of the equation. The "supply" side of the equation would involve to what degree the European Central Bank is pushing credit expansion, which tends to push the value of the euro downwards.
In addition to this, the article uses some expressions that does not sound very right when thinking about a big economy as Europe; for example, it is mentioned in the end of the article that, “The surest way to bring it down is to make more euros”. European system certainly has a slow, hardly predictable response time, many variables, and its behavior is definitely nonlinear. Thus, using such a simple and straight forward expression regarding the exchange rate of euros may not be very right thing to do, even though it is a correct statement to some extent.

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