Brussels in crisis: Huge pound sterling surge against euro unravels EU’s Brexit defiance
Pound sterling will continue to surge against the euro as long as the European Union struggles to contain the economic crisis in Italy, according to economist experts. Economists have labelled the British pound sterling as the “winner” following Europe’s coronavirus crisis, which has left the future of the bloc in peril. Standard Bank even forecast that sterling will strengthen to 80 pence per euro – a level not reached since the vote to leave the European Union – and it could go higher.
The news has sent shockwaves to the EU, after suggestions the jump in the pound against the euro could force Brussels to capitulate in Brexit talks.
Standard Bank said that the optimism surrounding the pound currency could see the EU give “more favourable terms” to the UK following the pandemic.
The bank’s head of foreign-exchange strategy Steven Barrow said: “The stigma of being associated with the EU –- and the eurozone in particular –- will only increase as a result of the coronavirus crisis.
“We’ve long had our sights on a return to 0.80 over the coming year for euro-sterling (a sterling rise of nearly 10 percent) but now we are starting to think that this might be a bit too conservative.”
JUST IN: Pound to euro exchange rate: Sterling surges to one-month high
Christian Nolting, global chief investment officer at Deutsche Bank Wealth Management, warned that eurozone will continue to sink in economic markets if the EU struggle to find a “cohesive answer” to the fallout.
He told Bloomberg: “The eurozone has struggled with discussions on Italy, so far not using ESM money, and you see the spread of Italy bonds widening again in the last two days.
“Sterling could be a winner but only if the eurozone continues to struggle to find a solution on Italy.”
The drop in the euro follows news that Italy’s ruling coalition remains divided over whether to use the EU bailout fund to help the country’s battered economy.
Prime Minister Giuseppe Conte is reluctant to use the half-trillion-euro agreed by EU finance ministers since it includes funds managed by the European Stability Mechanism (ESM).
Italy has always declined to use ESM funds in the past to avoid tough fiscal conditions imposed by northern European member-states.
Members of the Italian coalition government have lashed out at Mr Conte’s response, saying rejecting the EU offer will lead to an unprecedented crisis.
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Kit Juckes, a strategist at Societe Generale, warned that the £500bn bailout “still isn’t big enough”.
He told Bloomberg: “I’d still rather be long pound-dollar.”
On Wednesday, Brexit discussions restarted after the UK and EU chief negotiators agreed on a schedule for their next negotiating rounds.
The two sides will resume post-Brexit talks next week, where they will confront entrenched divisions on trade and fishing rights over video link.
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