For the first time in twenty years, the euro and the dollar have equalized, signaling the market’s expectation that the Russian invasion of Ukraine will precipitate a major economic crisis in Europe. Currently, 1 euro is equivalent to 1 dollar.
With the move, European businesses and consumers will pay more for imported products and services, while the cost of European exports on global markets will immediately reduce.
The value of the euro has decreased significantly since early February when it was worth around $1.13. In recent weeks, the decline has accelerated due to apprehension that Russia, the EU’s key energy supplier, could completely halt gas deliveries in reaction to Western sanctions.
To date, twelve European Union countries have witnessed a total or partial drop in Russian gas. Earlier this week, Nord Stream 1 pipeline deliveries were halted for a 10-day repair period. Unknown is whether the Kremlin will order the suspension to extend beyond the specified date and last indefinitely.
If the euro succeeds to surpass the value of the U.S. dollar, it will be closely observed. In November 2002, when the euro was worth $0.99, this event occurred for the final time.
However, Russia’s all-out assault on Ukraine has turned the tables and seriously harmed the economy of the EU. As a result of the invasion’s disruption of energy markets, gasoline prices have hit record highs.
The unanticipated shock has led to a persistent slowdown in economic activity and record-breaking inflation in the eurozone, with a total of 8.6% in June.
As a result of the interaction between the two causes, the specter of stagflation, a dangerous mixture that stifles economic progress while keeping prices excessively high for individuals and businesses, has returned.
The European Central Bank has previously raised interest rates in an effort to curb inflation, and it intends to do so in the future as the situation worsens.
As Croatia completes the process of entering the eurozone and becomes the 20th EU member to adopt the common currency, the euro and dollar have reached parity. On Thursday, the European Commission is likely to disclose a lower revision to its updated economic outlook.
Brussels has purposely refrained from making any firm forecasts about an oncoming recession for the time being and remains optimistic that the eurozone will be able to survive the disruption caused by the conflict in Ukraine and the energy crisis.
