A weaker euro also could give Europe a needed boost

MILAN, Italy - How low can the euro go? Many economists think the 16-country currency is headed for a further significant decline because of Europe's debt crisis.

Some are even predicting that by next year, the euro will sink to what's called parity against the U.S. dollar - that is, one euro equals $1, a level last seen in July 2002 and an 18 percent slide from Friday's $1.23. The euro already is near a four-year low.

Such a decline would take some of the shine off Europe's vaunted project in a shared currency. And it would cut Europeans' purchasing power for imports.

But if it happens gradually enough, a slide in the euro's exchange rate could help exports and provide the boost Europe's economy needs.

Export-focused companies would be more competitive on price outside the eurozone, likely boosting their revenue and helping to remove the threat that a sluggish Europe would drag down the global economy and stock markets.

With a lower euro, Parisian hotel owners could sell more Left Bank hotel rooms to tourists from North America, while Italy would surely sell more shoes and textiles. And Spain just might be able to turn over some of that vacant seaside property left from a U.S.-style real estate bubble.

Moreover, a weaker euro would help Europe's trade with Asia since countries there link their currency to the dollar.

All that would come as a relief to U.S. officials and investors, who have seen Europe's troubles weigh on stocks and expectations for the world economy in the last several weeks.

Exports have been a key factor lifting Europe out of recession. In the fourth quarter of 2009, exports from the eurozone rose 1.9 percent over the prior quarter.

That trend continues; the zone's exports rose 22 percent in March, according to European Union statistics.

European governments and the International Monetary Fund slowed the euro's slide by agreeing in early May on a $146 billion bailout for Greece and a backstop of up to $1 trillion for other indebted governments. But longer-term skepticism remains about countries' ability to pay down heavy debts, or about whether all 16 members will remain in the euro.

End-of-the-year forecasts for the euro range anywhere from $1.15 to $1.22. One of those seeing $1.00 in 2011 is BNP Paribas currency strategist Hans Redeker.

"There are a lot of negative events taking place," Redeker said, "and that means the euro is going to stay under pressure for the time being. But at the end of the day, we need a substantially undervalued euro to keep the eurozone together.

"That means a very weak euro is part of the survival strategy of the EU 16. We need a period of severe undervaluation of the euro."