In the last few weeks we’ve developed a taste for Kerrygold butter, which comes from Ireland. Diane did the research – Kerrygold and Anchor (from New Zealand) are the two healthiest butters you can buy. The milk comes from “happy” cows!
Unfortunately, Kerrygold costs more than regular butter.
In theory, the price should have come down recently as the euro has fallen in value against the US dollar. It now takes only $1.11 to buy a euro; it was twenty-five cents higher fairly recently. Ireland uses the euro, so the price of everything they produce should have come down with the lower value of the euro. But the price of Kerrygold has not fallen – in fact, it’s gone up by 50 cents for half a pound. (We can’t buy Anchor in Lansing but it, too, should have fallen in price as the US dollar has risen.) Not only has the euro decreased in value, transportation costs have also fallen with the drop in the price of oil.
My favorite beer also comes from Ireland. I don’t buy it as often as butter (you will be pleased to know) but I’m hoping that the price has not similarly risen.
Sometimes, there’s no logic when it comes to money and exchange rates. All money today is built simply on confidence. The value of the dollar and the British pound usually rise when there is great turmoil in the world – people around the world have more confidence in the two older democracies, which have a longer record of stability. When the euro was launched in January 1999, its’ value was $1.1743. It reached its highest rate against the dollar in July, 2008, when it took $1.6038 to buy a euro. This was at a time when confidence in the US currency was low. It’s now almost a third less against the greenback.
Monday will likely see a further fall in the value of the euro, so perhaps I should expect Kerrygold to go up in price again, when it should, in fact, come down.
The reason that the euro will likely drop further in value is the Greek election held today, Sunday. The “very left-wing” party, Syriza, has been voted into power. The party campaigned on a promise to end austerity, imposed on the country for its extreme profligacy.
The party leader, Alexis Tsipras, rather naively hopes that he can cut Greece’s debts by 50% in a new deal with the troika (the European Central Bank, the European Union and the International Monetary Fund). If that fails, withdrawal from the eurozone is a definite possibility. Other members may even encourage Greece to leave before they do greater harm to the single currency. Withdrawal would enable Greece to have its own currency. They could then print money and print more money and then even more money . . . you get the picture. This would not, of course, solve their problems but it might give them a temporary high.
Spain is watching developments in Greece closely. The Spanish economy is a lot bigger than Greece’s. It has also been going through a long period of austerity for the same reasons as Greece. The Podemos (“We can”) party is Spain’s equivalent of Syriza. It, too, could win the next election, due later this year.
Germany is unlikely to approve any deal for Greece that absolves them of debts owed to German taxpayers lest Spain make the same demand.
The eurozone is not really in danger, though Greece and Spain could certainly withdraw from the currency union. Other profligate countries could follow – Italy and Portugal, for example. Corruption is a big problem in all four countries. Mr. Tsipras has promised to do something about it, as have other earlier prime ministers.
Nineteen countries are now members of the eurozone. Six other European countries also use the currency. Outside of Europe, remaining overseas territories of European countries also use it. Additionally, 210 million people worldwide use currencies pegged to the euro, including 182 million Africans. This makes the euro the most used hard (convertible) currency in the world.
Expect further turmoil in world financial markets as well as possible changes in the composition of the EU, though few on the continent of Europe seem to want that, at this point in time. The EU and the euro have brought many advantages and have a great deal of support. Even Mr. Tsipras is calling first for changes that will simply end the long period of austerity that has devastated his country.