Almighty dollar not so mighty anymore

BRUSSELS — June Rives moved from Houston to Paris four years ago to guide American tours through the French wine country. Her business got off to a good start, but the Iraq war and American hostility toward the French didn't help. Now, the U.S. dollar is in the proverbial toilet, and Rives is feeling it

"I am totally getting killed by the dollar. I'm looking for a part-time job," says Rives, only half in jest. Her company, Rives Travel Excursions, still has an office in Houston.

To compensate for the 40% drop in business, she saved $750 a month by moving to a cheaper apartment and next spring will start offering painting and art museum tours for French tourists wanting to see America.

For Americans who live in or travel to Europe, the three-year slide in the dollar is taking its toll.

The dollar has weakened 13% against the euro since spring and 47% since January 2002, when the euro began circulating in a dozen countries, including France, Germany, Italy and Spain.


And it's not only the euro. Since May, the dollar has fallen 8% against the Japanese yen and nearly 12% against the Canadian dollar.

In Britain, which has not switched to the euro, the dollar has lost 8% of its value against the pound since the beginning of the year. In other words, fish and chips and a pint of Guinness beer at the Nags Head pub in Covent Garden will cost you $21 now, compared with $17 if you'd eaten there two years ago.

"We won't go to a movie unless we can get a student discount — it's $25," (for one ticket and a snack), said Taleia Monty, a student at Indiana University, who was drinking a cup of $4 Starbucks coffee.

She and her friend, Monika Parikh, who is attending the University of Texas-Austin, were taking pictures in London's Trafalgar Square.

"We looked at (apartment) rents just to see what it would be like if we lived here," Parikh says. "It's outrageous."

American tourists are still traveling to Europe for business and pleasure (the crowds have recovered from post-Sept.-11 lows), but some people are changing their plans. They are trying to stretch their dollars by taking advantage of package tours, booking shorter trips, traveling off-season and spending less.

Some are opting for cheaper destinations in Central and Eastern Europe, countries that don't use the euro, so a dollar goes further.

"Here, $12 will get you a cup of ... coffee and a croissant," says Adrian Keithly of Washington, D.C., who works for the Department of Homeland Security. He was here in Brussels last week on business.

While $10 or $20 here and there might not cramp a vacation or business trip, Americans living in Europe but being paid in dollars feel as if they've taken a big pay cut.

Expatriates, or expats as they are called, have started to make small lifestyle changes, such as cutting back on vacations, waiting for sales and buying more on trips home to the USA.

So far, they are getting little sympathy from Uncle Sam. The official stance of the Bush administration is to mouth support for a strong dollar but do nothing to prevent its decline.

Instead of talking the dollar up, the administration has urged other nations to do more to boost their own economies to encourage growth so they will buy more U.S. exports. That would help pare the USA's massive current account and trade deficits, which are major factors in the dollar's weakness.

Tempers rise as profits fall

On this side of the Atlantic, tempers are rising as profits are falling for European companies. While the dollar is off only 6% since the beginning of the year, it is down 10% since early September.

Last week, the European Central Bank said the "recent sharp moves (in the exchange rates) are unwelcome," and that it would "monitor the situation closely," a signal that the bank — akin to the U.S. Federal Reserve — may intervene to lower the value of the euro vis-à-vis the dollar.

At the current exchange rate of $1.33 to 1 euro, American-made exports are cheaper in Europe, and European imports are more expensive in the USA. But the weaker dollar also has made travel to America cheaper for Europeans. International travel to the USA this year is expected to rise for the first time since 2000.

"The fact the dollar has become so weak, vs. the euro and pound — that's one of the things that's been driving the recovery of international travel to the United States," says Cathy Keefe, spokeswoman for the Travel Industry Association of America, which predicts it will take at least two more years before the U.S. travel and tourism industry reaches pre-Sept. 11 levels.

And Keefe knows firsthand how the weak dollar hurts American tourists in Europe.

She and her sister visited Northern Ireland in October. They budgeted for an exchange rate of $1.78 to the pound, and bought hundreds of dollars' worth of Belleek Pottery, a specialty of Northern Ireland, for Christmas gifts.

"When we got home and looked at our bill, we said, 'Holy cow!' " The credit card company had booked the purchase at about $1.90 to the pound — about 7% more than they had anticipated.

Tourism in Europe has remained resilient, in part, because many hotels and tour operators in Europe are absorbing the currency loss themselves or putting pressure on their suppliers to help keep prices down. They have started offering special deals to help insulate Americans from the risk of fluctuating exchange rates.

The Capital Hotel in London, for example, offers Americans a room for $330 a night, including breakfast and car transfers to and from the airport with a minimum three-night stay. The hotel has kept this rate in effect since the beginning of the year, despite the drop in the dollar against the British pound.

"It helps quite a lot," says Lorena Somera, a spokeswoman for the hotel. "The package attracts more tourists from America." Americans represent more than two-thirds of the guests.

But with the current exchange rate of about $1.93 for 1 pound, more Americans are changing their plans. The number of tourists from North America to Britain fell 9% in October — the first decline this year, according to VisitBritain, the national tourism authority, which expects the trend to continue for the rest of the year.

Vacationing Americans

Americans looking for cheaper vacations are looking elsewhere.

"With the strength of the euro, it may affect the length of time people stay, and we have seen an uptick in some of the cheaper-cost-of-living cities, like Prague, (and towns in) Poland and Hungary," says Kari Swartz, product manager for leisure travel at Expedia.com.

A week's stay for two in Prague in early January, for example, starts at about $662 a person, including airfare from New York.

The same trip to Rome would start at $919 a person, according to a search on Expedia.com.

Of course, plenty of tourists spend freely despite the dollar's troubles.

Elaine Petrocine of Saddle River, N.J., was buying lace and chocolate in Brussels — two products for which the city is famous — and shrugged off the higher prices, saying, "I'm not going to find it at home."

But for Americans whose "home" is now in Europe, the sagging dollar is forcing many to cut back.

An estimated 4.1 million Americans live overseas, excluding military personnel, according to the Association of Americans Resident Overseas. More than 1 million of them live in Europe, mainly in Britain, Germany, Italy, France and Spain.

Many U.S. companies provide their overseas employees with cost-of-living packages to offset any differences in living standards, but employees still gain or lose when the dollar goes up or down.

"It's cheaper to fly back to the U.S. and ski than to drive to Switzerland and ski," says Deiadre Rauch, the permanent representative for the U.S. Chamber of Commerce in Brussels.

And she adds, "We're not buying the kids winter coats and ski stuff until we get back to the States" for Christmas.

U.S. companies don't often adjust their employees' compensation for exchange-rate fluctuations, according to John Harvey, a partner at ExpatCPA.com. "We do have clients who have negotiated to go on foreign subsidiary payroll (for a multinational company), to be paid in the local currency, specifically because of the weakening in the dollar."

But many employees don't have that option, notably those working for the U.S. government.

Jan Jones, whose husband is in the U.S. Air Force and stationed near Mons, Belgium, says she recently paid for her mother to have surgery, and the 4,000-euro hospital bill cost about $5,300 — about $300 more than it would have cost in January.

"I felt like I'd been robbed," she said. "It's, like, 'Here, take this,' " she says, holding up her purse.

And Lynda Williams, whose husband also works for the U.S. government and is based in Brussels, says she does more of her shopping at the PX, a military-base general store, where she can pay in dollars.

At this rate, more Americans living abroad are joining European tourists visiting the States, where everything is cheaper.
 

Source: CNN Money