Euro (EUR/USD) Subject To Further Downside As Franco-German Rescue Fund Plan Rejected by ‘Frugals’

Euro is at risk of further downside, after giving up ground at the latter stages of the past trading week, given the renewed safe-haven flow coming back into play. EUR/USD was being largely supported by optimism in the prior week, following German Chancellor Angela Merkel agreeing with French President Emmanuel Macron to establish a European recovery fund.

The agreement, however, has hit a road bump, as on Saturday other EU member states; Austria, Sweden, Denmark and the Netherlands stated their opposition. Do note, that these “frugal four” typically oppose big spending and fear the proposal will lead to a mutualisation of member states’ debt.

In their joint statement; they wanted the fund to “adhere to, including not leading to any mutualisation of debt and that it be of a “temporary, one-off nature with an explicit sunset clause after 2 years”. Debt mutualisation? (It is an idea for the Eurozone to be jointly responsible for a country's debt, equally among all members)

What does this mean for the market?

Euro could likely be weighed upon by this potential fundamental blow, given how much markets were excited about this after the initial German and French unity. It is now likely to cause further political tension and division among members.



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