The euro is falling! The euro is falling! Who could have guessed that European economic unity would be such fun for Americans?
Since its debut on Jan. 1, 1999, as common currency for most of Western Europe, the euro -- which unites currencies of 11 countries in trading against the rest of the world's currencies -- has fallen steadily. The result is increased buying power for Americans this summer -- 30 percent more, if you compare rates of May 17, 2000, with those at the euro's debut nearly 17 months ago.
On that opening day, the euro traded at 0.85 to the dollar. By May 17, a dollar bought about 1.11 euros in interbank trading. (Interbank rates are the preferred rates used by banks in multimillion-dollar transactions. Rates for consumers trading money at banks and exchange desks are less advantageous -- sometimes as much as 20 percent less.)
By all accounts, this is shaping up as a record year for American vacations (and spending) in Europe. The New York-based European Travel Commission, which markets Britain and the Continent on behalf of 29 member countries, is projecting a 5 percent increase in visitors from last year.
The euro may have fallen on hard times, but that doesn't mean there's a bargain on every street corner across the Atlantic. Exchange money at the wrong window or linger in the wrong country (Britain, for instance), and you can squander your chance at a windfall.
The 11 nations in the euro zone are Austria, Belgium, Finland, France, Germany, Holland, Ireland, Italy, Luxembourg, Portugal and Spain. In those countries, national currencies are still in circulation, but prices usually include national and euro rates, and those currencies now have a fixed relationship with each other.
Euro bank notes and coins are expected to enter circulation, gradually superseding national currencies, beginning Jan. 1, 2002. For now, here's a short list of ways that travelers miss out on savings abroad:
* They head for London. There are many reasons to visit London, but frugality and exchange rates aren't among them. Britain declined to adopt the euro while all its neighbors joined in, and as Britain's economy has boomed, it has been rewarded financially for staying out. The pound has risen sharply against the euro. During the last year, the dollar gained only slightly against the pound. A U.S. dollar bought about 61 pence (at interbank rates) a year ago, 65 pence this month.
* They forget to factor in inflation. Consider Turkey, a non-euro country. The dollar has gained about 46 percent against the Turkish lira in the last year. But inflation has been high in Turkey, so getting 46 percent more liras for your dollar doesn't necessarily mean you'll get 46 percent more goods and services for your liras.
The 11 euro-zone countries are required to meet tight limits on their annual inflation rates, and economists note that some aspiring euro-zone countries, notably Greece, are working to meet targets necessary for inclusion. But nonmembers such as Turkey and Russia (where the ruble lost about 24 percent of its value against the dollar last year but inflation reached 36.5 percent, government statistics show) are on their own.
* They assume that items bought by tourists fluctuate in the same way that items bought by locals do. Here's a rule of thumb regardless of exchange rates: The best bargains for travelers are usually on goods and services intended for domestic consumption, and the worst bargains are usually on goods and services aimed at tourists.
International hotels, for instance, are delicately attuned to shifts in exchange rates, and often their prices follow the dollar more closely than the local currency. Between August 1999 and April 2000, while the euro and the franc were falling about 8 percent against the dollar, the Paris Hilton was raising its lowest published rate by 19 percent to about $215, according to the quarterly Hotel & Travel Index.