ECB President Mario Draghi Achieves Short-Term Goal for the Euro

NEW YORK (TheStreet) -- European Central Bank President Mario Draghi has already achieved his goal of getting the value of the euro down so that the eurozone can become more competitive in world markets.

The euro has broken the $1.30 barrier, and was trading at about $1.29 on Friday morning.

Read More: The European Central Bank Cuts Interest Rates But It Is Not Enough

One of the problems that countries with non-competitive economies experience if they don't have their own currency is that they can't cause a decline in the value of their currency in order to make their goods more competitive.

With 18 countries in the European Union using the euro, some of which have strong, competitive economies and others that have weaker, less-competitive ones, a decline in the currency is undesirable for the stronger economies but helpful to the weaker ones.

Over the past couple of years, for instance, Germany has been the competitive, stronger economy and has strongly resisted the demands by the weaker, less-competitive economies to reduce the value of the euro.

That problem exists no longer.

The German economy actually declined modestly during the first half this year. The eurozone as a whole has basically shown no growth, and, disinflation continues.

Draghi has been pushing for a decline in the value of the euro this year to spur on eurozone exports by means of monetary actions so that governments such as France and Italy can introduce structural reforms to their economies in order to become more competitive.

He has resisted demands to follow the Federal Reserve policy of quantitative easing, primarily because he didn't see that policy as helping spur economic growth in the United States.

Draghi's goal for the value of the euro to decline first became clear at the ECB's June meeting.

There had been some decline in the value of the currency, which was at a near-term peak of $1.39 in the middle of March. The expectations surrounding the June meeting caused the euro to break the $1.36 level.

Falling below $1.30 represents a decline of more than 7% since the middle of March.

Many analysts didn't expect the euro to drop to $1.32 before the end of the year. Even as expectations were lowered, the view was that the euro would fall to $1.30 by then.

Read more: ECB President Draghi Is Staying Disciplined

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

 

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