Don’t Let the Declining U.S. Dollar Ruin Your European Vacation It’s not a happy story. Between 2002 and 2007, the dollar fell 33.4% against the euro, an average of 6.7% per year. While the large and increasing deficits in the U.S. trade balance are at the root of the long decline, the instability caused this year by the subprime mortgage crisis has hastened the greenback’s plunge. Since the beginning of the year, the value of the dollar already has eroded 7% against the euro which rose above $1.60 in mid April 2008 for the first time ever. Seemingly, the dollar is losing its appeal across the world. For the first time in more than a decade, in mid-April the dollar bought less than 7 yuan, ending the day close to 6.992 yuan.

Surprisingly, however, according to travel agents and industry analysts, the dollar’s steady decline isn’t keeping American vacationers at home. In fact, there’s been an increase in international travel, even to Europe where a cup of coffee can cost nearly ten dollars, making your copy of Europe on $5 a Day look like a real antique. According to a recent New York Times article, 13.25 million Americans visited Europe in 2007, a 2.7% increase over 2006. Looking ahead, industry analysts expect that number will at least remain flat, and perhaps increase slightly through 2008. Travelers are, however, making some changes in their vacation plans. For instance, the number of American visitors to the less expensive Portugal increased 20% in 2007.

If you planned your dream European vacation trip a year ago and are getting nervous about the trip’s rising cost, there are ways to economize so that the unfavorable exchange rate doesn’t ruin your vacation – or put you in major debt upon your return.

• Consider tour packages. Although you would think that having someone else do the legwork and organize your trip would be more expensive than doing the planning on your own, the reverse is true. In fact, packages can easily trim 25% or more off the cost of hotels and airfares. Cruises also can be a surprisingly affordable alternative.

• Avoid downtown hotels. Sure, it’s great to stay in the center of town, but all that convenience can mean a big price tag. Industry experts say hotels away from the tourist centers are usually 15% to 40% cheaper and, because most major European cites offer excellent, affordable public transportation, you won’t compromise your ability to reach the major tourist attractions. Another tip: Choose hotels that quote and guarantee rates in U.S. dollars so there are no surprises when your credit card statement arrives. Renting an apartment or house often gives you more space for less money and having kitchen facilities means you can cook for yourself rather than blowing your budget in overpriced restaurants.

• Use your boots for walking. You can best experience the real flavor of a city on foot. If you do need to travel beyond a city’s network of trains and local buses, rent a car for only as long as you need it rather than for your entire stay. If you plan extensive travel, a Eurail pass may save you money. Also, remember an overnight train ride can save you the cost of a night’s lodging.

• Score on free and discounted entertainment. Many European museums offer free admission on certain days or nights of the week or at certain times of the month. This is especially true for students. Check ahead and schedule your visit accordingly. Also, most major cities offer special cards that include combination discounts for multiple museums and local attractions.

• Go shopping – at the grocery store. Stock up on bottled water and snacks at grocery stores and carry your supplies with you each day rather than falling prey to the tourist traps. Also, if you make lunch your big meal of the day, you can enjoy expensive dinner dishes for half the price. Avoid restaurants that post tourist-friendly English menus and discover places frequented by the locals.

• Manage your money. Bank ATMs are your best bet for a combination of a fair exchange rate and low surcharges and fees. At a bank ATM, your bank likely will charge a transaction fee of 1% to 2%, but you’ll also get the favorable interbank exchange rate rather than the higher rates you’ll find at foreign exchange bureaus. If you must use a currency exchange counter, stay clear of airport or train station kiosks where you are almost guaranteed to get the worst rate available and highest transaction fees. If you plan on swiping your plastic through Europe, keep in mind that although credit card companies generally utilize favorable exchange rates, they sometimes charge fees for purchases made in foreign currencies, usually 1% to 2%. Before you travel, check with your credit card companies to figure out which card has the lowest fees for foreign purchases.

If you are just beginning to plan a European vacation, visit www.XE.com, a popular currency and foreign exchange site with an easy-to-understand tool for determining value. Additionally, the site offers an online tool that tracks historical rates and a travel expenses calculator to help you plan your budget. If you don’t like the numbers you see on the site, remember there are alternatives, even bargain destinations. For example, in the February 2008 issue of Condé Nast’s Traveler, Debra A. Klein’s “Dollar Power,” lists a number of exotic destinations where the U.S. dollar is holding its own. For example, she notes that many Caribbean islands either have their currency pegged to the greenback or accept U.S. dollars as currency. Some of these islands are Antigua; Grenada; St. Kitts and Nevis; St. Lucia; St. Vincent; and the Grenadines. Also, although the currencies of Argentina, Brazil, and Chile are strengthening significantly against the dollar, she urges vacationers to consider the region’s “emerging destinations.” Writes Klein, “Suriname has untrammeled forests, turtle nesting areas, and an economy with a de facto dollar peg. Even closer to home, Belize and Panama, where the currencies are linked to the U.S. dollar, are among the continent's most affordable destinations. Costa Rica's pristine beaches and verdant rain forests seem all the lovelier now that your dollar buys 33% more this year than it did in 2002.”

A final few words of advice: If you’re preparing for your vacation by learning some of the local language, add “Can I get a better price?” to your lexicon. Lastly, remember that your vacation goal is to enjoy some well-deserved rest and relaxation, not to drive yourself crazy working to get the best price on everything.  10:57 AM •