The impact of an Euro-breakdown on the United States and the USD-zone countries

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].

Couv-2tude

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

Exchange rate to the US Dollar

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

Average weight of the economies in the Eurozone

 

Weight in percentage

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

Txde Change Eur-USD

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.

 


Jacques Sapir

Ses travaux de chercheur se sont orientés dans trois dimensions, l’étude de l’économie russe et de la transition, l’analyse des crises financières et des recherches théoriques sur les institutions économiques et les interactions entre les comportements individuels. Il a poursuivi ses recherches à partir de 2000 sur les interactions entre les régimes de change, la structuration des systèmes financiers et les instabilités macroéconomiques. Depuis 2007 il s'est impliqué dans l’analyse de la crise financière actuelle, et en particulier dans la crise de la zone Euro.

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