Risk of Euro Crack-Up

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The risk of a Euro crack-up seems to be increasing after the British election and some recent comments by the National Front Party in France, as well as the perpetually simmering Greece crisis. This ECN Brokerage News has a huge impact on the fate and future trading range of the Euro.

On the British side, David Cameron has already announced that he will put the UK’s continued membership in the European Union to a popular referendum. Many analysts believe that the country will remain in the Euro zone but it’s still extremely unclear. A departure would hurt both economies and the value of both the Pound and Euro would decline against other international currencies.

On the other hand, the election proved that Scottish nationalism is alive and well. The party won 56 of 59 possible seats in parliament (an increase of 50 over the previous election), wiping out the Liberal Democrats.  If England left the EU, Scotland would join and perhaps adopt the Euro. That could actually strengthen the currency.

In France, the conservative National Front Party, which garnered 25% of the vote in EU elections, seeks to lead France out of the coalition. In addition, a recent poll showed that 62% of French citizens would not vote for the EU constitution in its present form. While this scenario is remote and would spell devastation for the Euro, it is an outlying risk.

Lastly, Greece continues to play games with its debt payments. The country has a barely positive net surplus with which to pay off loans but is still not able to meet its obligations with a 456 million Euro payment to creditors due in May.  These loans will continue to be modified and bailed out until a creditor has enough. At that point, Greece may be booted from the Euro, which would probably increase the value of the currency, as its weakest member is gone, as long as there is no contagion to other countries.

Overall, the risk of a crack-up in the Euro has slightly increased in recent weeks. Investors will continue to monitor closely.