While I am certain to be viewed as a biased source of information on this topic, and considering the fact that no one I know has a crystal ball able to predict exchange rates, I will nevertheless plunge ahead and give my reasons and justifications for taking that vacation to Europe this year.
Exchange Rate. No one can predict what the future will hold, but some "experts" have surmised that the dollar may fall to as low as 1.5 Euros before the bloodbath is over. At the time of writing, the rate seems to have stabilized in the short term at around 1.25 or so. It's hard to see the dollar strengthening anytime soon, given the huge deficit and slow economy. Waiting for the dollar to strengthen may leave you waiting a long time. But maybe things aren't as bad as you think.
Historically, Things Average Out. I've been traveling to Europe since the mid 1970s, and it's always seemed to me that prices have slowly risen as hotels adapted higher standards and the economy reacted to general increases in living standards, especially in Southern Europe. These changes seemed slow and steady, and largely independent of major short-term fluctuations in the exchange rate. See the next argument for a free market reason why I may not have noticed currency fluctuations much during my travels.
The Equal and Opposite Reaction. With the sharp decline in US visitors to Europe we've seen over these past couple of years, hotels are finally lowering their rates, recognizing that their excess supply of rooms may continue unless something is done to entice visitors. For example Arthur Frommer reports that London "hotels of five-star quality (are) charging less than $150 for a double room that would normally cost $400." This is how the Free Market is supposed to work; when things get too expensive for people to buy, prices must drop to "incent" them. It's happening for hotel rooms, airfares, and other tourist-only items right now. The effect may be that your vacation cost won't be as high as you might think compared to previous years. Just don't expect to buy standard European goods at a discount--shopping at home is recommended when the dollar is week.
Last year I walked into a great looking hotel in Chaves, Portugal, only to notice the sign on the desk proclaiming that all rooms were 90 Euros. When the clerk asked to help me, I pointed out that the room was too expensive and turned to leave--but fortunately not before she offered the room at 60 Euros, a price she quoted as standard for these tough tourist times. While still expensive for Portugal, the room offered 4 star, air conditioned comfort with a great view of the castle from the balcony, and the most elegant bathroom we've ever bathed in.
Things Change. An argument put forth by Carol Field and others is that European traditions are fading quickly in a multi cultural, easily traveled world. While independent of exchange rate, this argument, for me, is a compelling one, especially as Starbucks and McDonalds replace small, family run cafes and restaurants and Europe starts to look more and more like main street USA. I don't travel to experience the same things I can at home, and it's why I have to dig deeper and deeper to find places that celebrate those rapidly disappearing cultural differences.
The price of gas and the doomsday scenario. Many experts suggest that the price of gasoline will have to rise sharply to cover the cost of recovering oil from the neglected wells in Iraq (yes, oil wells go bad, I've read) and this increase is likely to spike after the elections and continue on an upward trend. Europe, it seems to me, is in a much better position to weather these increases in the short term, as they offer alternative modes of public transportation.
Even Worse: There is no doubt that oil is an increasingly rare commodity in an energy hungry world, and steadily rising prices will effect most of us around the globe equally. (Studies of Peak Oil and Gas (pdf) have predicted the production of Oil peaking at the end of this decade, and slowly declining thereafter.) This is my doomsday strategy, "go while you can, who knows what economic nastiness lurks around the next corner as we run out of energy sources."
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How to offset the dollar's weakness without sacrificing your vacation Fun? Read on to Page Two: Saving Money on your European Vacation - 12 Frugal Vacation Tips.
