The next two weeks are pivotal to the survival of the Euro. Everyone knows it. As a result, the sentiment has placed an emphasis on this week’s interest rate announcement by ECB President Mario Draghi.
But it’s not just the central bank’s announcement on interest rates that is the talk of the town. Here are two other things that will play a role in the Euro coming out alive.
Guest post by Richard Lee
1. Following a decision in mid-July to break for recess, the German Constitutional Court will reconvene and vote on the legality of the European Stability Mechanism as it stands for Germany on September 12th. The vote, required in order to ratify the ESM proposal by EU officials, is to take place in addressing an injunction placed on by a party of thousands of German representatives stating that the current proposal violates German constitutional law. In particular, opponents see the current proposal as being destructive to the German economy, exposing it to more systemic risks.
Nonetheless, the Court is expected to rule in favor of the ESM, thereby ratifying the measure and solidifying the creation of the mechanism. However, in the event that the Court does run into a snag, it would mean that EU officials would need to go back to the drawing board. For the euro, it would mean disaster.
2. Simultaneously scheduled for September 12th, the Netherlands will hold its second general election in as many years. This time around, although the Liberal party is expected to win again, Socialists have gained a backing on a platform that supports anti-bailout, anti-austerity and, more importantly, anti-euro. Politicians, in recent months, have turned to separation from the EU as a way to appeal to the masses. As a result, the trend is being likened to what took place in Finland earlier in the year – with about 25% of the overall Dutch public supporting such a separation.
Should Socialist support gain momentum in the days leading up to election day, the outcome could pose some problems when an anticipated coalition government is created. This would weigh heavily on the Euro and its near term future – making it very difficult for investors to place bullish bets on the single currency.
So, even as the majority of the market turns their attention to ECB President Mario Draghi and the upcoming rate decision, some attention will be diverted to these two events – offering up a bit more EURUSD volatility in the next week or so.