|SAN FRANCISCO, Jan. 27, 1999 - The 11 countries of Euroland
– Germany, France, Italy, Spain, the Netherlands, Belgium, Austria, Portugal,
Finland, Ireland, and Luxembourg – represent the world’s second-largest
economy, an industrial powerhouse that is 80 percent the size of the United
States. On January 4, 1998, these 11 countries started using their
new currency, the euro, for digital (paperless) transactions, which dominate
the financial industry. Actual euro coins and bills will not be issued
until July 1, 2002, meaning that all cash transactions will continue to
be in national currencies until that date.
Much has been written recently on the impact of the euro on European trade and travel, but how about the ways in which it could potentially affect the U.S. lodging sector? As the 11 countries of Euroland are major travel and trade partners with the U.S., the potential impact of the novel currency on the domestic hotel industry is worth investigating, according to Anwar R. Elgonemy, an Associate with PKF Consulting, an international hotel, real estate, and tourism investments advisory firm, with headquarters in San Francisco.
The rise of a powerful rival to the dollar could fuel new pressures on U.S. interest rates, impacting America’s trade balance, which is influenced by strengths or weaknesses in the dollar. If the dollar were to lose some of its commanding status, it – along with the U.S. economy – would become more vulnerable to the forces of global financial markets.
For example, the United States is currently able to accumulate significant trade deficits without investors fleeing the dollar, while emerging nations have to push interest rates up to fight investor flight. In other words, if a soaring euro took away some of the dollar’s prestige and standing, the Fed would have to assess the dollar’s strength in making decisions about U.S. interest rates, raising them to attract foreign investment if the dollar were considered too low. An increase in interest rates would temporarily dampen domestic lending, and the construction of new hotels would slow down, protecting existing hotel markets from oversupply. According to Elgonemy, many would find this a welcome scenario, since the late 90s are witnessing a hotel building frenzy reminiscent of the go-go 1980s.
“The euro could also weaken the dollar if global investors, namely those in Asia, decide to diversify their foreign exchange holdings that have long been concentrated in dollars,” Elgonemy says. Although a weaker dollar does diminish the purchasing power of Americans by making imports more expensive, exports become more competitive overseas, which is positive for the U.S. employment base. “A weaker dollar is definitely good for the U.S. hotel industry, attracting foreign tourists and boosting profitability at the property level”, said Elgonemy.
How else could the euro indirectly benefit the U.S. hotel industry? It is possible that the euro could ultimately eliminate many expenses of changing money. The euro would also enable travelers to easily spot price differences for travel services, shining a light on corporate expense accounts, says PKF’s Elgonemy. Without the confusion of receipts in numerous foreign currencies, a boss back in the U.S. would more easily spot attempts to “abuse” corporate accounts.
Moreover, the new ease of comparable pricing could make the business traveler more cost-conscious, being held more responsible by her company in identifying savings that cannot otherwise be controlled by the corporate travel manager, such as business meals and entertainment. These savings would ultimately benefit the bottom-line of companies in the U.S., opening up spending opportunities on business travel and lodging here in America.
Elgonemy also noted that although some skeptics say it’s like switching from miles to kilometers, where distances don’t get longer or shorter, the long-run impact of the euro on the U.S. hotel industry can only be neutral at worst, positive at best.