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All servicemembers in Europe realized an increase in their paychecks last week, and a similar bounce should kick in early next month for U.S. civilian employees.

The extra cash is intended to offset the increased cost of living in Europe, though it’s anybody’s guess how much further the dollar will fall.

The drop in value “is having a significant impact” on U.S. Army Europe, said Bill Thomas, the command’s budget officer.

By week’s end, the dollar was trading at a three-year low against the euro, having lost about 6 percent of its value in the last six months.

The dollar has also lost ground to the British pound.

A year ago, when the euro began circulating as legal tender, a person could exchange a dollar for 1.12 euros. Today, that same dollar is worth .93 euros, or it takes $1.07 to purchase a euro.

Lorenzo Codogno, an economist at the Bank of America’s European headquarters in London, predicts the $1.07 rate will rise to $1.15 by year’s end and to $1.20 by December 2004.

While the U.S. military in Europe is not in any serious financial crisis, the dollar’s slide and other factors are raising concerns.

Thomas is forecasting a $30 million budget shortfall for fiscal 2003, while U.S. Air Forces in Europe may need an additional $32 million just to offset the increased cost of operating in Turkey.

“Turkey gives us (budget) problems,” said Ross Hosse, a USAFE budget analyst. “When you get rapid inflation in a country like Turkey, it’ll impact the command.”

Besides preparing for the annual supplemental appropriations bill, which typically comes before Congress in the summer, budget staffs are formulating facts and figures for fiscal 2004.

A declining dollar usually has a greater effect at the office than at home, based on discussions last week with budget and finance personnel.

For many uniformed and civilian personnel, the fallout from a weakening dollar is negligible, since most shop almost exclusively on base and housing and other allowances are adjusted accordingly. Any money spent on the local economy often amounts to a meal here, a drink or two there.

“The soldiers are not being slighted,” said William Gordon, chief of the quality assurance division for the 266th Theater Finance Command.

A committee that reviews per diem, travel and transportation allowances back in Washington regularly monitors exchange rates. When there is a significant shift, allowances are adjusted up or down.

Servicemembers tend to have their cost-of-living allowance tweaked more often than civilians. Uniformed personnel received a COLA increase last week and there is already talk of another. By contrast, the increase in the cost-of-living stipend for U.S. civilian employees in Germany represents the first in six months.

Rate increases of varying amounts are also coming to civilians stationed in Belgium, France, Iceland, the Netherlands and Norway. In Germany, the rate will essentially be double what employees are now receiving.

U.S. military commands and other agencies, such as the Department of Defense Dependents Schools, receive financial relief from foreign currency fluctuations through an account operated by the State Department.

“In theory, our buying power is protected,” said Thomas, the Army budget officer.

But significant shifts or new developments can complicate matters.

USAFE, for example, expected to spend $290,000 in fiscal 2002 on a runway marker machine, said Master Sgt. Anthony Caracciolo, a budget analyst. But by the time the item was procured, the price had gone up to $350,000, because of the weaker dollar.

The foreign currency account is designed to handle such fluctuations. But a reimbursement can fall well short if the predetermined exchange rate, set well in advance of any fiscal year, is no longer realistic. For the Air Force, Turkey remains one of the biggest concerns.

In fiscal 2002, USAFE had to ask for supplemental funding to cover a $29 million shortfall, said Lt. Col. Barbara Gilchrist, USAFE’s budget chief. This year it will be even more due to high contract costs relating to the sagging Turkish economy.

“Our problems (in Turkey) have more to do with inflation than fluctuations in foreign currency,” Gilchrist said.

Last year, the command had a budget shortfall of about $10 million, he said. Thomas believes this fiscal year that figure could climb to maybe $30 million.

“Unless the budget grows (the current budget is $3.2 billion),” Thomas said, the weak dollar “is going to continue to have an impact.”

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