FRANKFURT—The struggling euro-zone economy is getting an unintended benefit from the region's escalating debt crisis, as the recent sharp drop in the value of the euro against other major currencies stimulates the region's exporters, limiting the severity of the downturn gripping the 17-member currency bloc.
The likely lift to exporters comes as the euro zone, though likely in the early months of a mild recession, avoids the kind of steep plunge in output that plagued the global economy in 2008 and 2009. That could limit the scope for the European Central Bank to embark on more radical steps, including large-scale asset purchases known as quantitative easing.
ECB President Mario Draghi on Thursday rejected suggestions that the central bank embark on quantitative easing, saying such steps don't lead to "stellar economic performance."
Also Thursday, Italy's government, headed by Prime Minister Mario Monti, called for a confidence vote on the €20 billion ($26 billion) austerity package aimed at shielding the country from the euro-zone debt crisis, as expected.
The 13% drop in the euro versus the U.S. dollar from its May peak, to around $1.30, could add more than 0.5 percentage point to euro-zone growth, economists say, assuming the recent slide sticks for several months. "If we get one side benefit from sovereign debt issues, a weakened euro...would be an extremely welcome outcome," said John Whelan, chief executive of the Irish Exporters Association, whose member companies account for 80% of Ireland's exports.
Effects of a lower euro should feed through quickly, particularly with the euro weakening against the U.K. sterling. The U.K. accounts for roughly 50% of the exports of Irish-owned businesses, mostly small and medium-sized, Mr. Whelan said, making the 5% drop in the euro-sterling rate since late October a welcome development for his group.
Others along the region's fragile periphery should see the benefit, too. Ireland and Portugal are the most sensitive of euro-bloc countries to the euro-dollar rate, according to economists at Royal Bank of Scotland. Spain's economy is also closely tied to exchange rates.
The weaker euro "will help Portuguese textiles exports, especially for countries outside the European Union," said Paulo Vaz, who heads Portugal's textile association, known as ATP. Portugal is home to roughly 7,000 textile-related companies, which account for 10% of its exports. The sector has fallen on hard times in part due to the euro's strength in recent years, as lower-cost competitors in Eastern Europe and China, with lower-valued currencies, gobbled up market share inside and outside of Europe.
Another beneficiary: France's Cognac market. In recent years, sales of Cognac, which can bear that label only if made in the region of the same name in western France, have been largely boosted by booming demand in China and the U.S.
For Cognac maker Louis Royer SAS, the effect of a weaker euro has been positive, says Philippe Pichetto, who runs the company's Americas export division. "The strong euro had a big effect on our margins," said Mr. Pichetto. "When clients paid in dollars, we had to absorb most of the extra cost."
Louis Royer, which had 2010 revenues of €36 million ($47 million), does around 30% of its business in U.S. dollars. A weak euro is helping the company partly offset increased production costs which will, eventually, have to be passed on to the customer in the form of higher prices, Mr. Pichetto said.
However, he noted that the euro would have to remain weak for at least six months before it had an important effect on the 150-year-old company's finances.
Larger companies echo the feeling that the dollar would have to remain strong for a sustained period before any real positive effect could be felt. Aerospace giant European Aeronautic Defence & Space NV, which in 2010 made the majority of its €45.8 billion revenue outside the euro zone, has long argued that the euro is too strong.
"If the dollar were to stay in the range of $1.30 for a longer period of time, this would be positive for our business. The more we are moving towards the purchase-power equilibrium, which is at around $1.25, the better it would be for us, if sustained," said an EADS spokesman.
The improved export prospects come as many euro zone members confront a toxic mix of economic stagnation, growth-draining austerity measures and rising borrowing costs.
The euro zone contracted for a fourth straight month in December but at a less pronounced pace than in November, according to a closely watched survey of purchasing executives, raising hopes that any recession will be mild. The Markit PMI index rose to 47.9 from 47 in November. Though still below 50, signaling contraction, the index reached its highest level in three months. December's improvement was driven largely by Germany, whose PMI rose nearly two points to 51.3, signaling modest growth.
"For the next three or four months our order book looks very good; overall I am still not pessimistic," said Kirsten Schoder-Steinmüller, managing director of Schoder GmbH, a 76-person firm outside Frankfurt that makes engraving tools and specialty machine parts.
Write to Brian Blackstone at brian.blackstone@dowjones.com, Max Colchester at max.colchester@wsj.com and David Pearson at david.pearson@dowjones.com
European Central Bank, Philippe Pichetto, Prime Minister Mario Monti, President Mario Draghi, euro zone, debt crisis, currencies
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