How strong is the baht versus the euro?

There is a lot going on in the monetary world. The euro is under pressure due to the weak economic performance and high debts of a number of countries within the European monetary union.

Countries that do not have their household books in order and can hardly or cannot meet their obligations have to borrow money from other countries or from the European Central Bank. If a country is no longer able to pay the interest on its government bonds, it is financially bankrupt. Lending money to less solid countries means a high risk, so those countries have to pay extra high interest to their lenders.

As a private person, just go to a bank to borrow money. With collateral such as real estate, or a reasonable securities account, this will not be a problem. However, if you have nothing to do and only a moderate income, coupled with high obligations, borrowing money becomes a difficult matter. And if the bank benevolently provides a credit, they will charge a relatively exorbitantly high interest, given the risk that you cannot pay or not pay on time. This is no less true for less solid countries where the national budget is not in order. Portugal, Italy, Greece and Spain already have a less flattering name: PIGS countries. The interest rate on 2-year Greek government bonds has already reached an interest rate of 46%.

Greece

It is very doubtful whether Greece will ever be able to repay its debts. The Greeks are still failing to put things right and the country's economy is deteriorating. This month, national parliaments must approve the €110 billion aid pledged by their heads of government in July. And that will certainly not happen without a fight. The country must voluntarily leave the euro and return to the old currency, the drachma, as has been suggested from various quarters. It's going to be a very exciting month.

USA

The dollar once adored in international payments cannot live up to its reputation either. America is weighed down by high debt and a high interest burden. In short, the American household budget is also not in balance. Given the great technological knowledge and the associated high-tech industry, America and Europe will probably start to climb out of the trough.

Euro vs baht

Complaints about the low exchange rate of the euro against the baht have been voiced from various quarters. But is that right? We return for a moment to the era of our hard guilder. The exchange rate of the guilder fluctuated around 18 baht before the introduction of the euro. With the conversion factor guilder - euro of 2,20371, 39.67 baht should now reflect the exchange rate at the time.

With a currently more than 7% higher exchange rate, we certainly cannot complain about the euro. Due to the initial euphoria around the euro, which at the time you collected more than 50 baht, we were perhaps a bit too spoiled.

Thailand

Except the agricultural sector Thailand hardly any about innovative and high-tech companies. You can say that a number of foreign car brands and other branches of industry have chosen domicile in Thailand, but in fact this is often simple assembly work that does not involve high tech. Generally speaking, investors shop for price, delivery reliability and political stability climate. Many foreign companies are based in Thailand and provide work that is often 'hands-on'. Labour-intensive work that in the more industrialized countries, where production has reached a high degree of efficiency through further automation and is hardly feasible given the high wage costs. The solution, as we can observe around us, is to move to low-wage countries, including Thailand.

Threats

The proposed wage increase that the new government has promised the people and the reduction in excise duty on fuel that has now been introduced come across as rather populist. The price reduction for petrol and diesel means a significant loss of revenue for the state and it is questionable how long this reduction will last. The wage increase will affect all foreign companies and make them think about reallocating. Simply put: look elsewhere for a cheaper production option. That danger is particularly high for Thai factories that manufacture to order. Executing the contract or buying it off and leaving can be an option for many foreign outsourcers.

For the heavier industry, this will not happen just like that, because people in that sector have often invested in machines and buildings. The textile sector is one of those industries where the risk is huge. Many neighboring countries are eager to take over this type of work, which requires little or no investment. After all, a brand emblem is quickly made.

Examples

Reallocation examples abound. For example, it is only a few years ago that Adidas terminated the contract with its Thai shoe manufacturer and hired production capacity in Indonesia. The reason? It saved a few baht per pair of sports shoes produced.

The investment climate for foreign companies has suffered a significant blow as a result of the turmoil that has arisen in the near past. In addition, the first impressions of the new government and the intended cooperation between Red and Yellow cannot be called exactly expectant. A political climate that cannot be called inviting for new investors.

To predict

Looking ahead and forecasting is and remains a difficult profession. You would be immensely rich if you possessed that gift. The only thing I dare to predict is that the insanely increased gold price will return to a significantly lower level. I see the advantages of the euro and I continue to have confidence. The Thai housekeeping book could well have to deal with a few striking slips in the near future. And if you have to deal with too much debt, it will have a direct impact on the overall economy. The economy on which the rate of the baht is also based.