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Euro to lose out if fiscal risks were to become more of a market focus again

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Economists at Commerzbank analyze how fiscal fears could affect exchange rates. The ECB has become the fighter against every sovereign debt crisis If

there is a fear that fiscal calamities will influence the monetary policy of the respective central bank, this dampens the positive effect of a restrictive monetary policy because there is a fear that it will no longer be sustainable.

In the Eurozone, it is the weakest link that counts, because since the Eurozone crisis, the ECB has become the fighter against every sovereign debt crisis. Therefore, it is not Germany's or France's debt levels that should be used to assess the Euro, but Italy's fiscal situation. In a US Dollar vs. Euro comparison, the Euro would probably be the one to lose out if fiscal risks were to become more of a market focus again.

 

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