Industry grouping BusinessEurope has warned that the euro’s growing strength against the dollar could lead to dampened growth. Its Director-General, Philippe de Buck, said, on 16 October, that once the rate hits US$1.50, alarm bells should start ringing for policy makers. On 16 October, the euro was worth US$1.4869, according to the European Central Bank (ECB), just down on an 11-month high of US$1.4881.

For Europe, it means more expensive exports at a time when external demand is essential, de Buck said. “And it will have to be a recovery based on exports because growth is elsewhere than in Europe,” he explained.

The European Commission has forecast that GDP will fall by an average of 4% across the bloc this year. The latest Eurostat figures show that the extra-EU trade deficit was €12.1 billion in August, down from a surplus of €0.6 billion in July.

BusinessEurope’s chief economist, Marc Stocker, said that the exchange rate problem could set Europe on a “different path” with regard to monetary policy and cause difficulties not only for exporters but for governments and the ECB. A strong euro means that interest rates may have to be maintained at lower levels for longer to help banks get back on their feet and stimulate growth. “It could be a stumbling block for recovery,” Stocker told Europolitics. “The strength of the euro could weaken the recovery momentum and make it more difficult to exit from extraordinary measures.”

ECB President Jean-Claude Trichet’s rhetoric lately has been to press for a strong dollar, which would take the pressure off European exports.

BusinessEurope will be taking the message to the European Council, on 29 October.