Neil Wilson, chief analyst at Markets.com, said the euro still has life left in it, but suggested a lack of agreement and continuity surrounding monetary policy for euro area countries leaves the single currency vulnerable to collapse. However, he remained pessimistic that the bloc can agree on a fiscal strategy to suit all nations, due to widely divided opinions of voters across the continent. Speaking to Express, Mr Wilson said: “I think the euro probably has more life in it – but unless there is fiscal union too, ultimately I think it will fail. The polarisation in Europe among voters suggests that is never going to happen.
“There is simply too much French and German political capital invested in this project they cannot let it fail – it would take an exogenous shock for it to go.” He went on to claim the eurozone would be most likely to deteriorate should a country exit the European Union, with Mr Wilson suggesting Italy would be most likely to ditch the euro.
Italy has been at loggerheads with EU finance chiefs for months now, with latest movements seeing the European Commission threaten Rome with disciplinary proceedings over its €2.3trillion (£2trillion) debt, which stands at more than 1.3 times its economic output. Mr Wilson also claimed Marine Le Pen – a vocal critic of the EU – rising to power in France with her National Front party could also cause unfixable damage to the eurozone economy.
However, the market analyst maintained that neither scenario is likely “in the near term”. He said: “The eurozone could collapse if Italy left or if Le Pen won in France.” This sentiment was shared by Michael Brown, senior markets analyst at Caxton FX, would said Italy, a nation who has the third biggest economy is the eurozone, leaving would be “fatal” for the euro area.
Speaking to Express, Mr Brown also cited the need for an EU-wide banking union and questioned if the ECB has the ammunition to support the eurozone should another crisis hit. The Commission this morning called for more integration among eurozone member states and asked the central bank to help their efforts. The EU finance arm pointed to a bank deposit guarantee scheme which has so far failed to get off the ground as an area where integration needs to be improved.
The ECB will publish its own report on the international role of the euro on Thursday, ahead of a meeting of finance ministers in Luxembourg on Thursday and Friday. Bank policymakers this week said they were open to cutting policy rate again if economic growth weakens in the rest of the year and a strong euro hurts a bloc already bearing the brunt of a global trade war.
Ricardo Evangelista, senior analyst at brokerage ActivTrades, also noted how the eurozone faces several challenges if it is to survive long for decades to come. Weak economic growth and a long lasting dovish monetary policy by the European Central Bank can be counted amongst the main ones, he told the Express.
Back in February, the EU sharply cut its forecasts for eurozone economic growth this year and next, citing global trade tensions and an array of domestic challenges, such as Britain leaving the EU. The Commission said eurozone growth will slow to 1.3 percent this year from 1.9 percent in 2018, before rebounding in 2020 to 1.6 percent.
While acknowledging potential catastrophes for the euro, Mr Evangelista maintained the future looked optimistic for the single currency, and predicted renewed interest. He said: “It is likely that the divergence in monetary policies between the ECB and other central banks will diminish. The FED for example, is very likely to start easing soon."
“Once this divergence starts fading away it is likely that the euro will become more interesting to investors and regain some ground to other currencies, like the dollar.”