Euro and dollar parity: what does it mean? / Turmoil and scandal in French politics

In EURACTIV’s last episode of Beyond the Byline before the summer holidays, we are addressing the turmoil in French politics. With Emmanuel Macron struggling to set up a functioning government, we look at whether a coalition is a possibility and address the impacts of the Uber files scandal.

But before that - the euro and the dollar reached parity this week for the first time in 20 years. With the possibility of the European economy heading towards a deep recession, we ask: what might this mean for the EU and how will it affect the citizens?

Podcast transcript

Evi: Hello, and welcome to EURACTIV's Beyond the Byline podcast. I am Evi Kiorri and every week we provide a view on what's beyond the news.

There is a turmoil on French politics with the Emmanuel Macron, struggling to set a function in government. We ask if there is a possibility for a coalition and what is the Uber files scandal that came to light.

But before that, the euro and the dollar have reached parity for the first time in 20 years, the European economy is heading to a deep recession, but what does this mean in practice and how does it affect European citizens

Janos: You get about $1, if you change one Euro for dollars about a year ago, you could get nearly $1, 20 for this. So there has been a depreciation of the Euro. The fact that it is now one to one, the parity thing, this is a symbolic thing. In theory, it doesn't really matter whether you get one to five, one to a half.

So this is more a symbolic thing. What is important is that there has been a devaluation.

Evi: János Allenbach-Ammann Aman is EURACTIV's economy and jobs editor.

Janos: Basically, it means that there is relatively more demand for dollars than for euros. That's why the price has changed.

Evi: Why is this happening? What are the reasons?

Janos: This can have basically two major reasons. One is in the real economy and the other is in the financial markets in the real economy. The currency changes if exports and imports change. If there is a lot of demand for euro area products, people will have to get euros to buy this stuff. So, the value of the euro increases if in turn EU citizens and companies import a lot of stuff from outside the Euro area, they have to sell euros to get this other currency and this makes the Euro drop.

Now what happened in the past year. So, until late spring and early summer 2021 Euro area imports and exports were rising at about the same rate. But then, export growth started falling while import growth accelerated. Thus, we have a lot more imports and only a bit more exports. Therefore, the relative demand for euro drops.

Evi: And why is that?

Janos: Basically, it's energy prices. The Euro area imports much more energy than it exports. It's oil, it's gas, all these things. Thus, rise in the price, changes the trade balance in and of itself. So, it doesn't mean that we have to import much more energy now than we did before, but it's just the price rises.

To put this in numbers from January to April, 2021 the euro area imported 95.1 billion euros worth of energy in the same time period. So January to April in 2022 we imported energy worth 233.6 billion. So that's 145% more, this is enormous increase.

And then the other important stories, as I said is in the financial markets. The financial markets, the investors, they are realising that things could get very bad for the EU economy for the Euro area economy, but the EU economy as a whole. What they are doing, they want to keep their assets safe. So they sell European assets and buy US assets. On the one hand, that is because the Euro area economy is very much exposed to these price changes and to the war in Ukraine, to the Russian invasion but on the other hand, it's also just that the dollar is the safe asset of the world.

. If there is uncertainty, people go into the US dollar, it's just. The US economy is dominated by the dollar, because it is the most used currency. This has always value, the financial markets say and this makes the price of the Euro drop.

Evi: But why the dollar Janos?

Janos: The US is still the most important economy in this way. The US banks are the most important banks. It is the deepest market in financial markets. You will always have demand. And because everybody believes there will always be demand there. They will buy this kind of stuff to have security.

Evi: And how is this impacting the economies of the European countries and the European citizens? What advantages and disadvantages are there for the citizens?

Janos: So as a European citizen if you don't deal a lot in other currencies, if you don't import a lot, you don't travel a lot, this does not make much of a difference directly to you. If, for example, you have some money invested in dollar denominated assets that's good for you. But if you plan to have a holiday in the US now this is going to be nearly 20% more expensive for you. This is bad. If you import stuff from the us, for example, you're just gonna have to pay more.

Evi: And what does it mean for the trade?

Janos: This is interesting because normally a falling currency is an automatic buffer for an economy because it makes your exports cheaper again. In theory, if your currency drops on the world markets, your products will be cheaper and thus more competitive and thus you can keep your economy running. You can restart it again. And in term, this currency gap would close again. The problem that we have is that in Europe these energy prices have risen much, much more than in the rest of the world. Even if you have a slight decrease of your prices due to the falling currency, you are still probably quite expensive or you still have gigantic costs due to the energy costs.

If you are an energy intensive producer this might just be a drop on a hot stone. So it might not have that much of a difference.

Evi: And do you think other currencies will follow this drop or?

Janos: So, for example, the Polish złoty it even dropped against the Euro so they are dropping even faster. It's not a thing that it's a Euro problem. It is more kind of a thing that there is a war going on and there is a lot of uncertainty. We might have a recession and that's why these things happen. It's not the Euro itself.

The whole world economy is a little bit jittery because of these geopolitical tensions and this leads a lot of people to flee some currencies or any currency and go to the us dollar. We might see this shift again but that remains to be seen.

Evi: Thank you Janos!

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In April 22nd Macron won the elections in France. However, the country is experiencing a historic political instability. With Macron, struggling to form a new government for his second five-year term.

Theo: We've had a president that was reelected in quite a historical way back in April but failed to get an absolute majority a couple of months later, back in June. This leads to basically a blockage within the national the national assembly with a president that has the biggest group in parliament, but only has a relative majority.

Has no coalition with any other parties and basically struggles or will struggle to pass on any laws.

Evi: Theo Bourgery is EURACTIV's reporter on French politics and policies.

Theo: There was a general policy address, which is something that a prime minister that has a new government tends to do. So, the prime minister will speak to all parts to all MPS and present the general I guess the general roadmap of the government for the years to come.

Evi: This Monday there was a vote of no confidence. What does this mean? And why is it important?

Theo: There is a possibility within the French constitution to call for a vote of confidence and this time around, because she knew she wouldn't get a majority of votes, the prime minister at Élisabeth Borne refused not to organise this vote of confidence, which was very much within her, right?

This led to a vote of no confidence organised by the leftwing coalition NUPES. That vote took place on Monday, failed to go through by wide margin. This was completely expected. It was very likely that it would not go through, but what it forced oppositions parties to do is to position themselves with regards to the government.

Are you ready to vote against the government, even if the motion comes from the extreme left, or are you wanting not to vote for it? Which kind of associates you with the government? And so the message sent was we, the leftwing coalition have motioned this vote of no confidence. We are the only ones who voted in favour of it. We are the only true position parties; the right wing and extreme right-wing parties are ready to create some kind of agreement. Be it explicit with the government they're not a true position. So, they want to create this schism where the left wind coalition versus the rest, which are one and the same be they extreme. Or majority party, government party.

Evi: Is there a possibility to see a coalition, if yes which parties could collaborate and if not, why not?

Theo: So I think we're at a stage in French politics, where if you have any clear idea on what you think will happen next, the likelihood that you get it wrong is you have to be careful. As things stand now, there's no chance for a long-term stable coalition. And there are two reasons why I say this. The first thing is that opposition parties were clear. They wouldn't strike that what they call government packed deal, which is a long-term coalition deal. All position parties have made it clear that they wouldn't participate in any of that.

And the second point is we've seen in the new government that was in veil last week. Just how limited the options were of ministers. And actually, the ministers that were appointed are all from the closest circles of Macron or within his electoral coalition, but don't go any broad than that. Don't go into other parties.

The political weight of that government is limited to those that already believed in Macron if you will, but it's definitely not multiparty. Now what's going to happen probably, is what they call basically case by case coalition. A few position parties have said that on specific instances, on specific issues, they would be willing to collaborate with the government. So, you might expect a sort of ad hoc coalition creation on every single file or every single bill that the government wants to see passed.

Evi: Also, there was a sort of a scandal making it out of the French borders and in the international press, the Uber files. Could you tell us a bit more on that? Why is it important? Why should we care?

Theo: It's an excellent question. And depending on who you ask in France, they will give you a very different answer and many will tell you that actually we shouldn't care. The Uber files came out last Sunday. And basically, showed that between 2014 and 2016, when Emmanuel Macron was still minister of the economy before becoming president, he perhaps got too close with Uber representative. And at the time the Uber world president this is basically brought into light questions about the relationship between public and private entities. What is the fine line between acceptable lobbying and con events. These are big questions that are being raised.

The answer by the government has been that so far, there is no problem because it is the role of the minister of the economy to meet all stakeholders, including private stakeholders, including American companies, such as Uber. And it's also the role of the minister of the economy to push through any reform, which my bring up employment or rather lower down unemployment rates and Uber was seen as this answer to unemployment in the youth population, especially back in 2015- 2016 when it was so high, we've just come out of the economic and euro crisis.

So, the argument is: it's normal because Manuel Macron met so many stakeholders and Uber was only one of them on top of that we brought so many jobs in the country. The flip side to this, which is when actually I'm writing an article about is that there is still this question of how close a comfort you can get with lobbyist before it becomes just basically a private company making the law and not MP.

And that fine line, which is more of an ethical one than it is a legal one is hard to define. And I think this scandal may actually help to define it a little clearer and perhaps even bring some kind of bill to control how lobbyists interact with the public sector in a more acute fashion, we might expect this to come through soon.

Evi: It really seems like Macron is losing some power in national politics. But does this also mean that he is weakened also at any EU level?

Theo: The reality is that France will still be France. And on top of that this political crisis that France is going through is unique. It's quite unknown, but in the grand scheme of things it's only been a month or so. And think back to Germany that can take months before the agree coalition pact. My understanding is that Macron especially through the first six months of when France was at the presidency of the council of the European union showed great really spearheaded European policy, especially with regard to the European crisis.

And that hasn't changed following the elections. It's unlikely that things will change in the near future, it might be a problem in the next year or so if there's absolutely nothing that changes in domestic space that the country still gets stuck. But so far, I think the aura of the country and the aura of Macron in the EU has hardly been challenged and won't be so for a while still, I would say.

Evi: And how are the citizens viewing all this situation and this instability and the power struggle between the different parties?

Theo: That's really what politics comes down to. Doesn't it? What we have to bear in mind is that Macron was not necessarily elected by people who believed in this program.

Instead there was this repeat in between the two rounds of the presidential elections. There was this repeat of 2017 where Mac home was facing off the extreme right candidate Marie Le Pen and I don't think the country is quite ready to see an extreme right-wing president or so they showed that they weren't ready.

What happened is a lot of leftwing voters turned to Macron to block Marie Le Pen from getting into power, which doesn't necessarily mean that they agree with Macron's policy. And in fact, a lot of people who voted for Macron do not believe one second in Macron's policies, but when you're stuck between a rock and a hard place you choose for the one that's a little less bad than the other, I think was their logic.

But ultimately there's great defiance towards Macron. I think people are tired of a president who they see as holding extremely vertical power and being quite arrogant, he's walking on eggshells and the country is not necessarily supporting him and in his favour.

Evi: Thank you Theo!

I am Evi Kiorri and this was EURACTIV's Beyond the Byline podcast.

We're going on holidays, but until we're back, you can visit EURACTIV.COM for the latest news. And if you haven't subscribed to the podcast, you can do so on your favourite podcasting app. This episode was produced by me with the help of János Allenbach-Ammann and Theo Bourgery.

Enjoy your summer break and thank you very much for listening!