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American travelers can cash in on €uro turmoil

Special to the Palm Beach Daily News

It's summer and definitely time to pack those bags and head for Europe, where the euro's exchange rate makes shopping on the continent a take-an-extra-bag-along experience.

Even though the debt problems experienced in some of the Mediterranean euro zone countries -- such as Greece, Portugal, Italy, Spain and Hungary -- may make for "economically" off-putting headlines and bargain flights tougher to find this year than last, there are plenty of deals on hotel rooms, dining and shopping that can make the journey worthwhile.

Before pointing out some of the bargains, here is a brief look at the history of this currency, currently used by 16 European countries.

Centuries-old dream

It wasn't all that long ago when heading off for a European holiday meant loading up on traveler's checks and understanding that each country you were planning to visit meant changing currencies at every border.

Of course, shopping was relatively simple, once you caught on to the ever-changing exchange rates from country to country. And since you were on vacation, how well each of the countries on the continent was doing economically was probably of little personal concern. What mattered most was finding the best exchange deals for your dollars.

Then along came the euro. That currency, adopted in 1999 by 11 countries in the European Union, was supposed to end the volatility of countries' currencies as well as help to strengthen and stabilize the continent's economy. While the United Kingdom has never gone along with the idea of a single currency for all of Europe, by 2002 the euro was the common currency in 12 other nations. Today, a total of 16 countries use it, sans the U.K.

A European common currency had been talked about as far back as 1848, when the French novelist Victor Hugo wrote, "A day will come when all nations on our continent will form a European brotherhood." While it took roughly 150 years for some part of Hugo's futuristic thinking to become reality, the euro has proved to be a source of both positive and negative experiences for the countries using it.

Pluses and minuses

On the upside, some things the euro has done make it easier for travelers to deal with exchange rates; instead of having to fiddle with those of 16 countries, there's the convenience of one common currency. That convenience was also supposed to save billions in currency transaction costs, increase employment, create manufacturing opportunities, help develop international trade, and keep inflation low. Additionally, all participating countries were to share the same interest rate.

Some of the limitations?

For openers, not all euro nations have performed economically equally. As a result, some have debt problems such as those in Greece. Fiscal concerns and worries now extend to other Mediterranean euro zone countries such as Spain, Portugal and Italy.

Then there is the lack of any other commonality among these nations other than the shared currency.

"There are elements to the euro that are certainly challenging," said Clayton Albright, managing director of economic research at Wilmington Trust. "You basically have 16 countries that are tied together only by the fact that they have a common currency but no central government. There is no central taxing authority, or central governmental authority in this whole process; and it's not surprising that in this kind of situation, stresses and strains in the financial system can develop."

Additionally, the histories of each country using the euro have few cultural similarities. "There's a national and political pride that runs deep in the veins of each country that's not likely to be dismissed or diminished simply because of one common currency," economist Steve Schoepke said.

Plus the euro, like all currencies in the world, has proven volatile.

According to statistics from the European Central Bank, its exchange rate has volleyed from a low of 82 cents (in U.S. dollar terms) in 2000 to a high of $1.59 in 2008.

Lowest rate since 2006

Now for the consumer-related positives.

As of Friday, the euro's exchange rate was under $1.20, the lowest we've seen since early 2006. That lower euro means prices of everything from dining out to car rentals, hotel and suite rates, clothes, jewelry, shoes, handbags -- you name it -- are less expensive to those of us buying with U.S. dollars today than they have been in years.

"Take a look at something like a Mercedes-Benz that is manufactured in Germany," Albright said. "If it cost 40,000 euros to buy that car at an exchange rate in the U.S. of say 1.44 a couple of months ago, that cost would be about 57,600 U.S. dollars. But at an exchange rate of 1.25 it's going to be $50,000 dollars. Those are the kinds of things we're looking at."

Another positive for the consumer -- prices at the pump to drive that Mercedes and the price of oil.

"With the euro having gone down in value and the dollar strengthening, the result is oil prices have come down as well because the exchange rate has worked in favor of the U.S. dollar," Albright said.

Travel bargains

And then there are the travel deals.

The Pavillon de la Reine in Paris is offering a special summer rate of 320 euros a night (about $391) for a superior room. That's a 20 percent savings off the normal rate of 400 euros a night. And the price includes breakfast.

If you're into easy dining, when in Milan stop by the Park Hyatt Milan for a healthy-living smoothie and an entree and you'll save about 17 percent.

Even the non-euro Brits are offering summer savings. A two-night Ultimate Savings stay at the Metropolitan with a seven-day advanced booking, for instance, can save you upwards of 55 percent.

And representatives from the Greek National Tourism Office in New York report that prices are going down daily in an attempt to attract travelers.

"The country is trying very hard to attract visitors, especially to the iconic islands of Mykonos, Crete and Rhodes," said that office's Alexander Kontogouris.

From Barcelona to Rome, five-star hotels to modest ones, designer duds to handbags, and wines to cheeses, countries in Europe are offering more savings opportunities than we've seen in years.

As for the impact a lower euro will have on the U.S. economy, while prices on some of the goods and gourmet foods we import -- such as Parmigiano-Reggiano, olive oil and fine wines -- are likely to trickle down, all lower-priced news may not be good news.

Alan Levenson, chief economist at T. Rowe Price, said he expects U.S. exports to Europe to weaken, but that because these exports amount to only 1 percent of U.S. real GDP, the impact will be "very modest."

And the earnings of U.S. companies operating in Europe will weaken as well, he said.

"More worrisome, perhaps, is that the credit crisis in Europe leads to a pullback in investors' and banks' willingness to incur risk here, which could damage our economic recovery."

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