Trump’s tariffs and Europe in decline – Why is the euro falling?

February 4, 2025

When I moved to Spain back in 2004, I had a few thousand dollars saved up.

The exchange rate, on the day I arrived in Madrid, was $1.26 US dollars for one euro.

But the euro was rising.

Over the next few months, as I tried to get settled into my new life, the value of the dollar fell by ten cents, to $1.36 per euro.

My dollar-denominated bank balance was looking smaller every day.

Here I was, just trying to rebel against society by moving to Europe and avoiding a job in a cubicle for a few years… and now, I was in the midst of a currency crisis.

Or not. In hindsight, that was just one little peak in the graph of the USD to EUR exchange rate.

There have been several others.

daniel at banco de españa
The author some 10 years ago at Banco de España, in the center of Madrid.

But when your’e living abroad, and your four-figure bank balance is rapidly falling, and you don’t have a steady income, any movement in the currency markets can make or break you.

This one was breaking me.

(I recovered when I started teaching English in Madrid – my hourly wage there, even working under the table, started to sound pretty respectable when translated back into dollars.)

These days, things are going the other way. The dollar was actually worth a bit more than a euro for a little while back in 2022. Since then, it’s been hovering around 1.10 dollars to the euro. But the last few months, the dollar has been steadily rising (or the euro has been steadily declining – it amounts to the same thing) and as of now they’re approximately equal.

Today, February 5th 2025, a euro will buy you just under $1.04.

What’s happening?

Why is the euro falling? Is Europe in decline?

I don’t want go way over my head here, discussing economic issues I don’t understand. I also don’t want to spend the next week researching currency markets.

Let’s just say that exchange rates depend on several factors. Interest rates, inflation and the economies of various countries seem to be important – as is political stability and the trade situation.

These days, with Donald Trump back in office as President of the US, one of the big watchwords in global politics is “tariffs” – you know, those boring taxes on international trade we learned about back in high school.

Europe has great architecture. The cathedral in Girona, Spain.

Well, I’m no expert, but the people over at The Guardian (and elsewhere) are suggesting that just the threat of tariffs on EU goods is enough to push the euro down.

(If you want to know more about how money works, I recommend the book The Price of Money by Rob Dix. And you can never go wrong with a bit of Basic Economics by Thomas Sowell. His discussion of tariffs and international trade is very interesting – as is everything else in that book.)

What’s up with the global currency market?

The currency market is the world’s largest investment market by far, moving $7.5 trillion per day. That’s light years ahead of the New York Stock Exchange, for example, which sees $117 billion in trades per day – that data comes from the website Investopedia.

Personally, I stay the hell away from anything that sounds like day trading. So I’m not interested in Forex, or Bitcoin, or anything like that. But if you have a bank account in the US and another here in Europe, you’re probably involved in currency trading whether you want to be or not.

On the expat groups on Facebook, a lot of people are talking about moving money abroad. Often, they’re hoping to buy homes in Spain. In that case, if you have to move many thousands of euros from a US account to one in Spain, the exchange rate matters quite a bit (and so do the fees).

(Do some research. But for smaller transfers, I always use Wise, which you can – and should – sign up for with my affiliate link. When Morena and I bought our house in Barcelona a couple of years ago, I used some other service for a couple of larger transfers, but I can’t for the life of me remember what that service was called.)

In any case, I’m not willing to predict what’s going to happen with the dollar and the euro in the future – anyone who says they can predict something like that probably has some shady agenda, in my opinion.

But it is interesting. And it makes me think about several other topics I’ve read about in the last year or so.

The decline of European economies

When talking about the decline of the euro, a very large elephant in the room is that European economies on the whole aren’t keeping up with the US anymore.

(It’s not just me saying it. Mario Draghi, who pretty much singlehandedly saved the euro back when he was president of the European Central Bank, recently wrote a long report on European competitiveness – and the picture he paints isn’t rosy.)

There are a few big reasons for Europe’s economic woes: efficiency in Europe is lower than in the US. There are mountains of red tape keeping people from starting businesses. Taxes are higher.

And salaries in the EU aren’t great, which means that a lot of talented people prefer to live and work in the US, if they can. Brain drain is real.

I keep seeing articles online comparing offers for top jobs in Europe to ads looking for gas station managers in the US. As it turns out, you can earn much more working in the US, even if your job doesn’t sound very glamorous.

Also, there was a recent online kerfuffle – it’s really dumb, don’t even google it – about how managers at US Chipotle restaurants can earn around $100,000 a year. Of course, kids don’t go to school for the better part of two decades dreaming of becoming fast food managers.

But here in Europe, it’s equally bizarre that people are expected to get a Master’s Degree and speak three languages in order to work in reception at a hostal, or fold sweaters at Zara.

catalan declaration of independence
Two of the four towers of Cuatro Torres Business Area here in Madrid. Photo by the author.

The average salary across Europe is about 38,000€ per year, whereas in the US it’s $62,000. Here in Spain, the average is even lower than the European one, at a bit less than 24,000€ a year.

So even with the euro being a bit stronger than the dollar, there’s definitely a salary gap.

Anecdotally, here in Spain, I know a whole lot of educated and intelligent people who speak multiple languages and work in the service industry for 1300€ a month. It’s not ideal, but that’s just what’s available.

Meanwhile, the Spanish government is trying to reduce the number of hours in the work week. Which sounds nice if you’re some sort of office worker who stands to benefit from that sort of thing. But it seems unlikely to make the economy more competitive moving forward.

But isn’t Europe a socialist paradise?

One of the big myths that Americans often believe when it comes to Europe is that we’re living in a sort of socialist utopia out here, where everyone takes long vacations and lives high-brow, subsidized lives.

Well, I don’t know about everywhere else in Europe, but here in my neighborhood in Barcelona, that sort of thing just doesn’t ring true.

It is true that Europe is a bit more equal than the US – if you don’t count things like the existence of literal royalty.

And the free healthcare is nice. But it’s unclear what the future of Europe’s welfare states looks like. With a rapidly aging population and massive immigration in many countries, the welfare systems are being stress tested in ways their designers in decades past couldn’t possibly have foreseen.

(The recent conversation about subsidies has been a bit heated because the government was having trouble passing a law to renew the half-price monthly pass for public transport. In my case, though, I spent the last year paying 160€ more every month for self-employment tax, so saving those 22€ on my metro pass wasn’t quite as thrilling. Your mileage may vary, though.)

Downsides to the European economic model

Also, this socialist-leaning system has its downsides.

If you own a business – like I do – your life is going to be pretty expensive and complicated, at least here in Spain. The generalized anti-business culture seems to think that wealth is created by government bureaucrats, not entrepreneurs.

getting a job in spain
If you live anywhere in Spain, chances are you could use more money.

Laws designed to protect workers’ rights can also backfire, when it becomes almost impossible to fire people – even for extreme laziness and incompetence.

I worked with people back in the day who were just too senior to fire, and it brings down the whole workplace vibe for everyone. I shudder to think of the same thing happening in other Spanish companies, but it probably does. Someone I know who’s in middle management says she has a yearly “firing budget”.

She often wants to fire somebody-or-other for being total dead weight on the team, but has to wait for the next fiscal year. If she presses too hard for them to actually do their jobs, they go on sick leave.

An economist would probably have some euphemism to talk about this politely – “inflexibility in the labor market” or some such. To me it just sounds like a shitty system for getting things done.

Against doomerism, on both sides of the Atlantic

I’ve been in Spain, like I said, for over 20 years now.

And in that time, I’ve heard from plenty of people that the US is done for.

“How do you feel, Daniel? Knowing that your currency and economy are on the brink of collapse…”

Or, more recently: “What do you think about the undeniable fact that Donald Trump is your new King for Life, and that US democracy is over?”

I used to take these sorts of questions more seriously – what does this person know that I don’t?

But at this point I’ve heard it all so often that it doesn’t affect me.

Doomerism is easy to fall into, but rarely justified. That goes for the US, and for Europe as well.

europe in decline
I think this church was destroyed during the Civil War. Now the bottom part’s a library. Lavapies.

In fact, I remember hearing about how the European Union could soon collapse all the time, during the big economic crisis. That crisis lasted several years, and was quite a difficult period for a lot of people. But we muddled through and regained some sort of normality just in time for the stupid Covid-19 panic.

When we came out of that one, we had the war in Ukraine, and the promise that skyrocketing energy prices would ruin everything that Europeans had spent 2000 years building.

(I’m exaggerating, slightly… but it was something like that.)

Anyway, apart from a few months of very high inflation and the fact that olive oil went up to about 10€ a liter, we seem to have passed the worst of that crisis as well.

I can now report that olive oil is back down to six euros and change at my local Mercadona.

And now, I wait, with barely-contained excitement, to see what the next crisis will be. According to Enrico Letta, interviewed recently in La Vanguardia, it’s Donald Trump, and his tariffs.

Letta, who was once Prime Minister of Italy for almost 10 months, may be right. Or he may be wrong.

Only time will tell.

Skeptically yours,

Daniel AKA Mr Chorizo.

P.S. For more about Europe’s decline, check out this article, which talks about several of my points, and more. The other side of the coin, of course, is that the lifestyle in Europe is really good – especially if you’re earning an above-average salary (or move here with a large bank balance). I wrote about that in my article Is Barcelona the new Austin? for example… and many others. What do you think? Let me know, right here in the comments!

P.P.S. I didn’t manage to work this bit into the article, but if you want to have your mind blown, check out the map of US states and comparably-sized world economies. Spain’s economy is similar in size to that of Florida, at a GDP of around $1.5 trillion annually. And then we’ve got 49 more states, also with country-sized economies. It’s wild.

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About the Author Daniel

How did I end up in Spain? Why am I still here almost 20 years later? Excellent questions. With no good answer... Anyway, at some point I became a blogger, bestselling author and contributor to Lonely Planet. So there's that. Drop me a line, I'm happy to hear from you.

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  1. Is Europe truly in decline or is it that the priorities are different here versus the U.S.? I honestly don't know. The focus in the U.S. is on making as much money as you can as fast as you can, much of that through short term stock market manipulation via goosing earnings statements. Europe's focus seems to be less on that and more on social stability (which is also arguable but at least is more people focussed). Does Europe need to keep up with the U.S. economically? We're certainly following the U.S politically with the rise in right wing extremist parties but I'm not sure red, white and blue envy is really the way of the future.

    1. Hey Jay, I agree that maybe constant economic growth isn’t strictly necessary. But I also think that welfare states and national debts depend on the economy growing, so how Europe will fare if they just give up on growing the GDP is an open question. Also, will voters / the public tolerate their current systems of government for another 20 years if their quality of life doesn’t improve? I guess we’ll find out…

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