What’s behind Euro strong upswing?
Euro is going north for the sixth consecutive trading day buoyed by political developments managed to take the lead over other market drivers in drawing the line for the single currency.
The currency is completely ignoring ECB’s rate cut decided last Thursday in favour of financial overhaul in Germany based on proposed constitutional amendment which targets removing debt limits (debt brake) to raise defence spending.
In addition, the move from the part of chancellor-in-waiting Friedrich Merz also implies another positive development as he it seems that the proposed legislation could strongly unify the front of the potential ruling coalition. There is also signs of agreement from political forces from opposition like Germany’s Greens who shoed willingness to negotiate proposed massive spending plans.
The plans include €500B for spending on infrastructures and defence. This was followed by broader similar proposal of discussed by European Commission, which brought about backing a proposal to use flexibility in European Union’s fiscal rules to increase spending on defence without being subject to disciplinary steps from Brussels for excessive borrowing.
This comes after last week’s EU summit’s agreement on increasing defence spending by €800B in four years. The whole mater started after the shocking decision of the US president Donald Trump to suspend military aid to Ukraine. ?????
It’s expected that Euro surge could continue supported by EU defence spending plans as well as dollar weakness which is fuelled by continuous escalation scalation of trade tensions between Washington and Ottawa.
The European Commission proposed allowing each EU country to raise defence spending by 1.5% of gross domestic product a year, for four years, without any disciplinary steps that would normally kick in once a government deficit is above 3% of GDP, according to Reuters.
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