The Future of the European Union and the Euro

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The Future of the European Union and the Euro

Author: Bobby Iaccino / Founder-Chief Strategist Path Trading Partners

 

On December 4th of last year, the Italian populace went to the polls to vote on a constitutional referendum. The bill, put forth by then Prime Minister of Italy Matteo Renzi and his Democratic Party, would have radically centralized power in the hands of the Prime Minister and whatever political party happened to be in charge at the time.  A “yes” vote was viewed as status quo and a “no” vote was viewed as populist. Italy voted no, which some commentators at the time were calling a “Brexit” result.  

Had the voters approved the new constitutional amendment, it would have meant constitutional reform not seen in Italy since Abolition in 1946. It would have not only changed the organization of the Parliament, but according to the bill’s supporters, it would have improved on the stability of government in the country. Opposition parties claimed that it was poorly written and would have made the government too powerful. Renzi resigned (as he promised to do) and new elections are expected to happen before summer. Expected to show well in the elections, is the new anti-establishment party known as the 5-Star Movement, who seem to be promising they will drain the swamp and favor a move towards Italy leaving the EU; an “Ital-leave”, if you will.  

First the UK voted for Brexit on June 23, 2016, then the US for Donald Trump, and Italy voted no… what’s next in the populist fever sweeping through the developed world?

France; the single most important event of the modern era for the EU is the upcoming French election and the first round is only weeks away.  The first round of the vote will be held on Sunday April 23. Once that is settled, France's next President will be elected in a run-off election which will take place on Sunday May 7. The people of France will choose between the two candidates that won the first round of voting in April.  Europe is holding its breath and the rest of the world should too. Brexit was easy, and even that will take 2 years of negotiation to complete (if it gets done in 2 years).

The UK never adopted the euro, so they have no currency issue to work out in the negotiations. France by contrast, is the 2nd largest economy using the euro currency making a “Frexit” catastrophic for the currency, and it is a possibility. If the polls are to be believed (a strange statement to make in these times) the runoff election in May is likely to be between anti-EU nationalist Marine Le Pen against pro-EU centrist Emmanuel Macron. Still within reach in first round are conservative François Fillon and ultra-leftist Jean-Luc Mélenchon. Centrist Macron has a sizable lead, but the wild card is this; two thirds of French voters are polling as undecided. Pro-EU watchers are taking some comfort from the Dutch elections in which the mainstream liberal party defeated the party for Freedom led by Geert Wilders, known as the Netherland’s Donald Trump, but many others worry that the undecided voters in France could vote populist with just one new geopolitical event.

The euro may not survive long-term if this happened. After Brexit, the euro fell 2.4% in one day then went sideways falling again only due to dollar strength after the Trump election. After the Italian vote, the euro fell 1.5%, but finished the day + 1.2%. After the Netherland, the euro rallied 1.2%, and continued to rally until the end of March. If Le Pen has a strong showing in the first round on April 23rd, the euro will likely fall 2% or more and then accelerate if she actually wins the run-off. Populism will sweep through Italy, Spain and possibly even Germany, who benefits most from the euro, but cannot do it as the lone, large manufacturing economy.

The calls for the euro to fall below parity with the US dollar have dissipated, but they shouldn’t have. The French elections pose a great opportunity for traders, but many people are nervous about entering the multi-trillion dollar a day, Wild West of FX. There is however a safe, cost-effective way to be involved in the largest market in the world and that’s through Nadex Binary options and spreads. No concerns about margin calls, phantom stops, high balances or even large currency moves that could wipe you out. No sleepless nights over unscrupulous brokers because there is no broker. “Nadex” stands for North American Derivatives Exchange, which is a CFTC regulated American exchange. You don’t have to worry about brokers because you trade directly at the exchange, just like market makers do.

The event that could signal the beginning of the end for the euro currency as we know it cannot be ignored by any serious trader, and it is only days away. The future of the European Union and the future value of the euro itself will be written in French. You don’t have to speak or read French to trade it, though. You just have to be involved. 

 

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