Euro risks endangered status on EU squabbling in time of turmoil

17:50 • 13.05.20
Economy

The European Union’s failure to rally together against the pandemic has left the euro the least defended currency of the developed world, reigniting fears of a breakup of the bloc itself,  Bloomberg reports.

Since the mid-March peak of this year’s market turmoil, the euro is the worst-performing currency in advanced economies, trailing a recovery in peers that was sparked by joint fiscal-monetary stimulus in their respective economies. Money managers’ positions in the shared tender have seen a bearish shift, while strategists are fast losing their optimism for a rebound.

Europe’s inability to mount a long-term joint fiscal defense against the economic shock from the coronavirus starkly contrasts with trillions of dollars of stimulus unveiled by governments from the U.S. to Japan. While doubts about the euro project’s longevity are nothing new, this time even the European Commission has warned that the region’s north-south schism could threaten the union.

“It’s not just Covid -- I don’t think markets have taken any comfort from what it’s done to the European Union,” said Jonathan Pryor, head of corporate foreign exchange at Investec’s Treasury Risk Solutions. “That’s putting another question mark on the medium to long-term value of the euro.”

The euro has fallen more than 3% against the dollar this year to around $1.08. While a Bloomberg survey of analysts still points to a recovery to $1.12 by year-end, the consensus prediction has actually slumped from the $1.15 level that was in focus at the start of the year. Also, option traders are paying little heed to any calls for a rebound, positioning instead for more weakness.

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