How to Take Advantage of Strong Dollar in Europe

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 lock-step in trading against the rest of the world’s currencies--has fallen steadily.

The result is increased buying power for Americans this summer--30% 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% 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% 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 like the franc, mark and lira 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’s 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. An American dollar bought about 61 pence (at interbank rates) a year ago, 65 pence this month. The U.S. State Department’s per diem rates--a barometer of lodging and dining costs around the world--allow government employees $228 daily for London lodging, up from $210 last year and $199 the year before that. (You can find the government’s lodging and dining allowances for worldwide cities on the Internet at https://www.state.gov/www/perdiems/index.html.)

* They forget to factor in inflation. Consider Turkey, a non-euro country. The dollar has gained about 46% against the Turkish lira in the last year. But inflation has been high in Turkey, so getting 46% more liras for your dollar doesn’t necessarily mean you’ll get 46% more goods and services for your liras. In fact, Turkey’s annualized inflation rate has been running about 65% this year. It’s no great bargain to gain 46% in currency-exchange tables if the cost of rooms and meals in your destination country has jumped by 65%.

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 like Turkey and Russia (where the ruble lost about 24% of its value against the dollar last year but inflation reached 36.5%, 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 primarily at foreign 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% against the dollar, the Paris Hilton was raising its lowest published rate by 19% to about $215, according to the quarterly Hotel & Travel Index. At the Four Seasons hotel in Milan, Italy, low-end brochure rates have actually risen from $328 to $351 nightly from 1999 to 2000.

* They trade money at any old place. Currency exchange rates vary widely, and if you trade your dollars or traveler’s checks at a place that offers poor value (as most hotel exchange desks do), you could lose 5% of your money before you’ve set foot outside. Similarly, spending via charge card rather than trading cash at an airport kiosk could save you as much as $8 for every $100 you spend.

Example: If I had traded $100 on May 10 at the International Currency Exchange kiosk in LAX’s Terminal 1, I’d have gotten 59.76 British pounds or 656.6 French francs. (That includes the exchange company’s fee of $2 on transactions that size. Trades of more than $100 carry a 1.5% fee.) If I’d spent that money abroad via my Mileage Plus Visa card and the transaction went through the same day, Visa International reports that I’d have gotten 63.05 British pounds for my $100, or 708.1 French francs. That’s a savings of about 6% for the pounds, 8% for the francs.

Banks generally offer better rates than hotels and currency exchange offices (although currency exchange operations off the tourist path may be an exception). But charge cards usually beat banks. Even though charge card-issuing institutions have started charging fees of 1% to 4% on foreign spending, the best strategy is spending on a charge card. Next best is usually using a charge card to get cash from an automatic teller machine.

Christopher Reynolds welcomes comments and suggestions, but cannot respond individually to letters and calls. Write Travel Insider, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053, or send e-mail to chris.reynolds@latimes.com.