Weak Dollar Weighs Heavily on Europe
BERLIN — The euro rose above the $1.60 level Tuesday for the first time, adding to pressure on big European exporters to raise prices and drawing admonishments from Germany toward other governments seeking to encourage the European Central Bank to push the currency lower.
In the clearest sign yet that the euro’s sharp rise against the dollar is weighing ever more heavily on some exporters, Airbus said on Tuesday that it would raise the price of its aircraft, which are priced in dollars.
Nevertheless, the biggest country in the 15-nation euro area, Germany, rejected fresh calls to dilute the inflation-fighting mandate of Europe’s central bank to help rein in the soaring currency.
Despite the twin pressures of a strong currency and a slowing economy, the German government, long a defender of central bank independence, said it categorically opposed a plea from the incoming Italian government for greater political control over the bank.
During his campaign for prime minister, Silvio Berlusconi who last week re-took the office, promised to forge an alliance with the French president, Nicolas Sarkozy, a critic of the bank’s rigid, inflation-fighting mission.
“The German standpoint has been very clear, is, clear and, dare I say, will remain clear,” Thomas Mirow, state secretary at the German finance ministry, said.
He noted that the Maastricht Treaty, which established the euro, “to a large degree was inspired by the experience” of the German central bank, the Bundesbank, which had price stability at the core of its mission.
“We stick to the Maastrict Treaty,” Mr. Mirow said. “I cannot imagine any German government will change from that stance.”
The German government’s move seemed intended to pre-empt any concerted effort by Italy and France to start a drive to help loosen central bank policy and pursue a more growth-oriented strategy.
Germany’s chancellor, Angela Merkel, sees herself as a guardian of the independence of the central bank, which is based in Frankfurt.
Coming around the 10th anniversary of the creation of the European common currency, the renewed tension is a reminder that the fundamental dispute over the objective of monetary policy in Europe — which raged before the creation of the central bank — remains unresolved.
But any change to the bank’s rule book would require unanimous agreement.
During his election campaign Mr. Berlusconi laid much of the blame for his country’s economic difficulties on the central bank.
“It is clear that something is not right in the interest rate policy of the European Central Bank,” he said in an interview with Panorama, a magazine owned by his Fininvestcompany. “We should return to the primacy of politicians. It is not thinkable that it is the bankers who decide the destiny of 400 million Europeans.”
On Tuesday, the euro briefly crossed the $1.60 level in late afternoon trading in Europe, a first. In late afternoon trading in New York, the euro hit $1.5998 from $1.5912 Monday.
The latest surge followed public comments by two bank governors in Europe, who said interest rates in the euro zone could rise if mounting inflation is not curtailed.
The primary objective of the bank’s monetary policy is to maintain price stability and the bank aims at inflation rates of below, but close to, 2 percent over the medium term. In March, the euro zone rate was at 3.6 percent, according to Eurostat.
The latest evidence of the strain imposed by the rising euro came from Airbus, which faces difficulties among European companies.
Not only is its main product — aircraft — priced in dollars on the world market, but it is constrained politically from moving large chunks of production out of Europe to dollar-based countries to ease the currency pressure. The European plane maker has joint management in France and Germany and thousands of jobs in both countries.
Airbus said its price increases — up to $4 million on the flagship A380 — would go into effect from May 1. It blamed the falling value of the dollar and the rising price of commodities like steel and aluminum used to make airplanes.
“We have to keep pace with the world market price developments and secure profitable deals,” said John Leahy, chief operating officer for customers at Airbus.
Airbus’s parent company, European Aeronautic, Defense & Space, has been struggling to reduce the impact of unfavorable exchange rates on its results. It also has been trying to diversify its exposure and reposition its business to shift more costs into dollars.
Just Tuesday, EADS announced that it would buy a California company, PlantCML, specialized in security systems for $350 million.
EADS said the purchase would expand its presence in the United States and Canada.
Still, Louis Gallois, the chief executive of EADS, has called the strong euro a “sword of Damocles.” And EADS is not alone. On Monday, the AeroSpace and Defense Industries Association of Europe warned that the weak dollar could lead to losses of thousands of jobs.
The dollar has lost about 15 percent of its value against the euro in the last 12 months while metals prices have gone up by at least 6.5 percent, Airbus said in a statement. The company still uses metals for about 40 percent of the construction of new planes including titanium, steel, aluminum and aluminum-lithium.
Airbus said the price increases would come on top of a normal increase in prices of 2.74 percent and would mean customers would pay an additional $2 million per single-aisle aircraft and $4 million per wide-body long-range including the A380.
Mr. Leahy said that even with the price increases, Airbus’s line of more efficient planes still would deliver value for money for airlines in an environment where the price of fuel — which is currently about 40 percent of airlines’ operating costs — also had risen sharply.
Concerns about the strong euro in the business world now threaten to prompt a new rift in Europe. Mr. Berlusconi’s re-election comes less than three months before France assumes the rotating presidency, which will give Mr. Sarkozy the ability to set the bloc’s agenda.