Slowly weakening euro could strengthen economies

MILAN - How low can the euro go? Many economists think the 16-country currency is headed for a significant decline because of Europe's government debt crisis.

Some are even predicting that by next year the euro will sink to what's called parity against the U.S. dollar - when one euro equals $1, a level last seen in July 2002 and an 18 percent slide from Friday's $1.23.

Such a decline would take some of the shine off Europe's vaunted project in a shared currency. And it would cut Europeans' purchasing power for imports. But if it happens gradually enough, the slide in the euro's exchange rate could help exports and provide the boost Europe's troubled economy needs.

Export-focused companies would be more competitive on price outside the eurozone, likely boosting revenue and helping to remove the threat that Europe will drag down the global economy and stock markets.

With a lower euro, Parisian hotel owners could sell more Left Bank hotel rooms to tourists from North America, while Italy would surely sell more shoes and textiles. And since China and other Asian countries link their currency to the dollar, the euro would weaken in that direction as well and help trade with Asia.

All that would come as a relief to U.S. officials and investors, who have seen Europe's troubles weigh on stocks and expectations for the world economy in the past several weeks. Exports have been a key factor lifting Europe out of recession.

In the fourth quarter of 2009, exports from the eurozone rose 1.9 percent over the prior quarter and totaled 838 billion euros - or 36 percent of eurozone economic output. That trend continues; the zone's exports rose 22 percent to 134.9 billion euros in March, up from 110.3 billion a year earlier, according to EU statistics.

European governments slowed the euro's the slide by agreeing on a 110-billion euro bailout for Greece and a backstop of up to $1 trillion for other indebted governments. But that has not erased longer-term skepticism about countries' ability to pay down heavy debts, or about whether all 16 members will remain in the euro. Many think Greece, which needed a bailout to avoid defaulting on a May 19 debt repayment, will eventually have to restructure by seeking more favorable repayment terms.