During the 2000 – 2002 period, one Euro was worth less than a Dollar and that made sense. After all, the Dollar is the world’s reserve currency and it has been around for a considerably longer period than the Euro. But something happened and during certain periods of 2008, the Euro ended up costing almost 1.6 Dollars.
What does this mean for European businesses?
Bad news, plain and simple.
What does it mean for most European countries?
Once again, bad news because their debt became even more of a burden due to an overvalued Euro and, more importantly, Europe became less and less competitive.
That’s the most important problem BY FAR in my opinion.
Europe isn’t competitive enough and an overvalued Euro doesn’t make things easier.
Let’s assume you bought an asset for $10,000 back when one Euro was worth 85 cents.
In other words, you paid about 11,750 EUR for it.
Great, now let’s assume you sold it for $15,000 a few years later when the euro was worth $1.5.
A 50% return isn’t bad, right?
Well, how many Euros could you buy with $15,000 at a $1.5 EUR/USD exchange rate?
Exactly, it sold for 50% more yet you can’t even buy the amount of Euros you paid for it.
You paid 11,750 EUR and ended up with 10,000 EUR a few years later even though you sold the asset in question at a 50% profit in dollars.
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