A Painful Exchange
Americans' Pocketbooks Pinched by Euro, Pound
PARIS, Dec. 8 -- It didn't take long for sticker shock to hit Allan and Christine Britton.
Twenty minutes after arriving in Paris for a brief layover between the United States and South Africa, they were standing at the foot of the Eiffel Tower, checking out the menu at the Jules Verne Restaurant: sea bass, $78; filet of beef, $77; lobster, $106; dessert, $25.
"Everything I see here is expensive -- even the train in from the airport was expensive," said Allan Britton, who runs a textile company in Meriden, N.H. With a shrug, the couple padded off in search of something more reasonable.
The tanking dollar, which recently hit a 20-month low against the euro and a 14-year low against the British pound, has Americans who live or travel in Europe gulping harder, digging deeper and shelling out painful amounts of money.
The $9 soda, the $5 espresso and the $30 taxi ride are commonplace. Dinner for four at a pizza joint for $100 is starting to leave a bad taste in Yankee mouths.
"The poor dollar," moaned George Bernauer, a retired school teacher from the Boston area and regular visitor to Europe, as he headed into the Louvre museum. "Five euros" -- that would be $6.65 -- "for a can of Coke; it's outrageous."
The greenback is taking one of its worst beatings ever in Europe, with high U.S. trade and budget deficits, low personal savings, the burst of the U.S. housing bubble and threats of a recession driving down the value of the dollar overseas, particularly in Europe, where economic growth is picking up.
On Friday, it took $1.32 to buy one euro, a fall in value of about 13 percent on the year and approaching the record of $1.36 in December 2004.
Many analysts think the drubbing is going to get worse.
"Our bank is bearish about the currency. In our latest report, we expect the dollar will be at $1.40 against the euro at the end of the first quarter next year," said Philippe d'Arvisenet, chief economist at BNP Paribas in Paris.
Others are much more pessimistic, d'Arvisenet said, with some warning that the dollar's value against the euro could fall as far as $1.90 if Asian governments and developing countries get spooked by continuing declines and decide to sell off their huge dollar reserves.
"If they abandon the dollar, it could cause a global recession, and the dollar could go through the floor," d'Arvisenet said. "It would be counterproductive for everyone. So we rule this out. But maybe we're wrong.
The dollar is doing even worse against the pound, down about 15 percent this year. On Friday, it took $1.95 to buy one pound, a 14-year-low that approached the psychological 2-to-1 exchange rate barrier.
For practical purposes, that rate is already here, said Krystal Dunn, 21, an economics student from Battle Creek, Mich., who is studying for the year at the University of Edinburgh in Scotland.
"Every time I go to the grocery store, I simply multiply by two," said Dunn, who was making her first visit to Paris on Friday. She recently wanted to buy a paperback book and was astounded at the price: 13 pounds, or about $25.60.
Her schoolmate, Mary Christie, 20, an art history major from Indianapolis, had a different way of doing dollar-to-pound calculations. She noted that nominal prices are roughly the same in Britain and the United States, with a shirt that would sell for $50 in the United States typically going for 50 pounds in Britain. After the currency exchange, that is nearly $100.
"My parents came over for a visit and it was like, 'Man, it is so much more expensive here,' " she said.
Americans who live in Europe tend to adjust to the local currency after a while "and are less sensitive to the day-to-day movement in the dollar," said Michael Willisch, 38, an American lawyer who has lived in Madrid for six years.
When euro banknotes were introduced on Jan. 1, 2002, one euro was worth 89 cents. "That was when it was time to buy apartments and things like that," Willisch said. Now, he said, the "big-ticket items" in particular seem out of whack.
"With local taxes, and then if you do the currency conversion, a BMW that sells in the high 30s in the U.S. sells in the high 40s in Spain," he said.
It is unclear whether the plunging dollar is discouraging Americans from traveling to Europe or simply pinching them harder when they get here.
For example, statistics show that the number of Americans traveling to Paris last year, the most recent year for which data are available, was 23.4 percent lower than in 2000, the year before the Sept. 11 terrorist attacks. Some analysts said that indicated factors other than the currency were discouraging American visitors.
"I think it could partly be the ill feeling between the two countries; some Americans may have chosen not to come out of spite," said Alice Grevet, an official at the Association of American Residents Overseas in Paris. "But I also think even getting on an airplane is not as carefree as it used to be, so what's going on in the world is a huge contributor."
But a 2005 report by the French Parliament found a strong correlation between currency rates and American tourism, saying there was a "surge of American tourists" when the dollar was strong; when it was weak, fewer Americans came, they stayed a shorter time and they spent less.
Alex Zivoder, managing director of the online travel company Expedia France, said that the number of Americans traveling to Europe in the first half of the year with his firm was up 25 percent over the same period the year before, but that the growth had slowed since summer. "That seems to be linked probably to the exchange rate, but it is very difficult to say," he said.
While the British press has reported high numbers of Britons flying to the United States recently looking for Christmas shopping bargains, Zivoder said the number of Frenchmen traveling to the United States this year has remained flat.
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