The Pros and Cons of a Weak Euro

The lingering Eurozone crisis has brought with it a decline in the value of the euro vs. the U.S. dollar. With the economic situation in Europe still shaky, the European Central Bank (ECB) has initiated a strategy of quantitative easing to spur growth. At the same time, problems in Greece have not gone away, and the new Greek government is threatening to exit the euro currency. All of these things are likely to keep the euro low for some time to come, and as with most things, there will be winners and losers in the U.S. economy. (See also, Will The ECB's Quantitative Easing Sink The Euro?)

The Winners Importers of European goods. Companies that use European parts as inputs will find their supply chains becoming more affordable. Transportation companies that purchase European cars and trucks will benefit by adding to their fleet at a reduced cost. Similarly, airlines that buy their planes from Airbus or other European aircraft manufacturers will do so at better-than-usual prices. This can help boost profit margins for these firms. U.S. consumers. American consumers will find that imported consumables, such as fine wines and cheeses from France and Italy, have become more affordable. German cars, including Audi, Mercedes Benz, BMW, and Volkswagen, will all become less expensive at showrooms in the U.S. Investors in European companies that do big business in the U.S.

American investors are able to buy shares of foreign companies through ADRs which are listed on U.S. stock exchanges. European ADRs of companies that have a large presence in the U.S. may benefit by increasing sales here. Bayer, the German producer of over-the-counter drugs, reports that a 1% depreciation of the euro could increase company sales by €260 million. Airbus could see a $1 billion boost in profits for every 0.10 decline in the euro, and chemical manufacturer BASF forecasts an extra €50 million in earnings for every one cent the euro drops.