NEWS | Wednesday, 10 October 2007

Strong euro: bad for ST, good for oil

Kurt Sansone

While the euro is highly acclaimed as being an advantage for Malta’s competitiveness in the EU, a strong euro against the dollar could leave its toll on exports that are invoiced in dollars.
Even if the strength of the euro has not created a public stir in Malta, export data from 2006 reveals that anything upto 37% of the value of Malta’s export trade could be contracted in dollars with STMicroelectronics accounting for the largest chunk.
A strong euro could up the pressure on the competitiveness of manufacturing industries that trade in dollars bringing to fore once again the central role ST plays in the domestic economy.
According to economist Lino Spiteri there should be no appreciable impact as from 1 January 2008, when Malta officially adopts the euro as its currency, other than the same impact there is today. “The Lira has been locked with the euro for two years as part of the ERMII arrangement so the actual introduction of the euro will not have any particular influence on exports more than we are experiencing at present,” Spiteri says.
He concurs that the biggest impact of a strong euro, even if it has moderated against the record highs of late, would be felt by exporters that invoice in dollars.
However, a weak dollar is also an advantage for a country that is 100 per cent dependent on oil imports to sustain its energy needs.
“A weak dollar must also be seen within the context of oil purchases which account for a large part of our imports. It can help to mitigate the increase in international oil prices since we purchase oil in dollars,” Spiteri tells Business Today.
Federation of Industry President Martin Galea argues that the euro should not have a negative effect on Malta’s competitiveness in the EU.
“It will strengthen our position, and if anything, will make it easier for us to compare prices,” he says.
Galea believes Malta’s competitiveness and export business should become stronger. “At this stage the euro has a positive outlook for Maltese businesses,” he insists.
Budding industries such as the pharmaceutical sector trade in euros, which will be of great advantage to them since all exchange rate risk would be eliminated.
But there is growing concern across the eurozone on the impact of a strong euro with Luxembourg Prime Minister Jean-Claude Juncker yesterday identifying China, the dollar and the Yen as priority topics for discussion at a meeting of eurozone finance ministers gathering in Luxembourg.
Eurozone ministers called for China to reform its currency, saying it is too low in value.
The gathering was held ahead of the G7 meeting on 19 October in a bid to reach consensus on a common position to adopt in view of the impact new economies such as China’s are having on Western countries. Eurozone countries Italy, France and Germany will be part of the G7 talks.