It is now proved beyond any doubt that Germany benefits greatly from the single European currency, according to World Economics, a data and analytics organisation.
The weaker members of the euro drag down the external value of the euro compared with the US dollar. This makes German exports far more competitive than they would otherwise be.
- French euro prices are effectively 20% higher than Germany’s
- Greece now weighed down by a 32% disparity with German prices
- British pound claws back strength in Purchasing Power Parity terms
German euro 32% undervalued
In Purchasing Power Parity (PPP) terms the euro in Germany is some 32% undervalued compared with the Greek euro. This greatly benefits German exporters, but imposes a burden on Greek exporters that they must find impossible to cope with. Conversely the overvaluation facing French companies is now a clear 20% compared with German companies, states World Economics.
Further major currency disparities in PPP terms are shown.
Brazil and Argentina suffer
Brazil and Argentina suffer from overvalued currencies against the US dollar. World Economics says this suggests one reason for the serious recession suffered by South America’s biggest economies over the past year.
In contrast Canada, Russia, China, Mexico, Turkey and India all have currencies between 15% and 44% undervalued against the US dollar. This suggests that at least some of president Trump’s currency manipulation rhetoric is justified.
Over time these fundamental disparities have not shrunk, says World Economics. They have in fact widened. The charts show the trend of German undervaluation against the French and Greek Euro's in PPP terms.
The final chart shows the increasing undervaluation of the Renminbi in PPP terms against the US Dollar over the past three years.
The World Price Index (WPI) measures the value of an urban selection of goods and services at PPP. PPP reflects the real purchasing power of different nations, allowing for rapid and accurate international price comparisons. Under/over valuation information is based on the difference between the exchange rate value of a currency and that of the US dollar in relation to the WPI calculated exchange rate.