Euro is created as a safe harbor

The euro has increased over 10% compared to the US dollar since January and reached $ 1.1369 per euro on Monday (April 14).

While a large part of the euro rally on a flight from the dollar due to the protectionist trade policy of the US President Donald Trump – including steep tariffs of 145% in China – results

The 20-member eurozone recovered from a slight recession in 2023 with growth of 0.8% last year and a projected expansion of 1.3% in 2025. However, US tariffs for imports from the European Union are threatening 20%.

In view of European recovery due to economic uncertainty, many foreign investors change capital from the dollar into European stocks and bonds and strengthen the value of the euro.

The US eurozone interest gap is expanding

The strength of the euro is also heated by a different monetary policy. The Teeuropean Central Bank (ECB) has several times a response to persistent inflation in parts of the euro zone, while the Fed kept the interest higher and caused investors to prefer the only currency.

Nevertheless, the serious currency fluctuations of 10% are relatively rare in only months and the euro is increasingly regarded in these turbulent geopolitical times as a counterweight to the dollar, since the fears grow that Trump’s tariffs could lead the US economy into a recession.

“Trump undermines confidence in the rationality of the US political decision, the long-term prospects for the growth of the United States and the sustainability of its public finances,” said Holger Schmieding, chief economist of Berenberg Bank. “As a result, the dollar loses part of its value, but the euro is not a real alternative.”

Forged The damage that Trump’s commercial agenda could cause in the global economy could weigh up the growth of the euro zone And require that the ECB reacts with more tariff cuts. “

Oxford Economics estimates that if Trump is 20% tariffs for EU exports, the growth of the euro zone could decrease by up to 0.3 percentage points this and next year. The projection assumes that Brussels would react with targeted countermeasures against US goods than with retaliation on a full scale.

Germany’s 1 trillion € Stimulus increases trust

The massive expenses for massive defense, infrastructure and climate protection, which was approved by Parliament at the beginning of this month, will include significant € 1 trillion (1.13 trillion dollars in the next decade).

The announcement has further strengthened the trust of investors in the euro and reinforced the latest rally in the currency by signaling long -term economic support in the center of the euro zone.

Much of the German editions are financed through new bonds, which increases the income and attracts foreign investors. Commerzbank, the second largest lender in Germany, predicts that the country’s debt quota in the next decade could increase to 90% of gross domestic product (GDP), which would make the euro-depreciation more tempting.

“The additional public borrowing will make the short end of the German market for fixed income (short -term bonds) a little deeper and more liquid and therefore more attractive,” Schmieding told DW.

Goldman Sachs predicted last month that the massive incentive would increase Germany GDP by a complete percentage point and growth of the euro zone by 0.2% percentage points next year.

“One reason for this is that we expect stronger growth in Germany to pass into neighboring countries,” wrote the European head of Goldman Sachs Research, Sven Jari Stehn. “Another reason is that we now expect the rest of the euro area to use military spending in response to the German announcement a little faster.”

France, Italy and Spain are expected to increase defense spending closer to 3% of GDP over the next two years.

Could common bonds help the euro?

In view of these ambitious plans for military spending, Rebecca Christie, a senior scholarship holder of the Think Tank Bruegel, based in Brussels, joined the growing call to issue a common debt in Eurozone, which is often referred to as Eurobonds.

“Common bonds are a strength that is worth strengthening.

She referred to the 750-billion euro stimulus package, which was introduced after the Covid 19 pandemic, which was financed by more than half by shared bonds-a unprecedented step of the EU.

The creation of Eurobonds is supported by the southern EU countries, but rejected by northern EU members, including Germany.

Advantages and disadvantages of a stronger euro

The current strength of the individual currency is initially a blessing for consumers and companies that can buy products at lower prices-many Europeans boycott many Europeans and accuse Trumps of aggressive trade movements.

Tourism in the USA from Europe has also become a little cheaper, while raw materials in dollars such as oil and gas have become more affordable. This is a welcome relief for the manufacturers of the euro zone, which still deal with high energy costs through the full invasion of Russia in Ukraine.

Christie noticed that European airlines and military people could also benefit from cheaper prices for new aircraft that are also bought in dollars.

“At the same time, some European exporters may feel that the effects of their goods become a little more expensive for the rest of the world,” she said.

Germany is the most susceptible to the strength of the euro, since around half of its GDP are losing out last year.

A stronger currency makes German cars, machines and chemicals at a time when the largest economy in Europe is already struggling with high energy prices, weak global demand and intensive competition from China.

While some currency retailers predict that the euro could further strengthen the Greenback before the end of the year, most important investment banks predict that it is the current level.

“At the moment everything is extremely uncertain, and it is unclear whether the euro continues to increase compared to the dollar or the level. At the moment it is still within his historical reach,” Christie von Bruegel told DW.

Published by: Uwe Hessler