The Main Reason Why Most Americans Won’t Profit From a Depressed Euro

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By Jacob Maslow

Euro - European Central Bank
FRANKFURT AM MAIN, GERMANY – MAY 14, 2014: Euro sign in front of the European Central Bank (Europaeische Zentral Bank)

As you already know, the euro has crashed against the US dollar. In fact, according to some analysts, the US dollar and the euro will reach parity at around September. Unless you are planning a trip to visit Paris, Rome, or other Eurozone hotspots, the crash of the euro really won’t benefit you all that much.

The primary reason why this is the case is the fact that a lot of the products Americans buy from Europe are high-end products. There is a reason why German engineering commands a premium. There is a luxury cache to many classic European brands like Mercedes Benz, BMW, Prada, Louis Vuitton, Gucci, and others. Since these products tend to occupy the high end of the consumer market, it is safe to assume that Americans really won’t benefit all that much from the euro’s crash. Why? The manufacturers and brand managers behind these solid brands will increase their pricing, and the market won’t budge.

The luxury market works with slightly different rules from traditional commodities markets. If the discussion was about Japanese products, then you can expect Americans to benefit quite well because the price of Japanese consumer goods would fall and they would be more attractive to American consumers. The problem is that most European products are luxury goods. The economic rule in luxury goods is that they gain their value precisely due to their elevated prices. Since the euro is going down in price, to maintain the value of these luxury goods, the brand managers as well as the manufacturers behind them will increase their price to offset the euro’s erosion. Considering the fact that the market continues to value these high-end products precisely because they are expensive, don’t expect the market to put up a fight.

Due to the reasons above, American consumers really won’t benefit all that much from the crashing value of the euro. Of course, the primary way consumers can benefit is if they can get on a plane and visit Europe. Outside of that, they won’t see too many benefits.

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