EUR USD (1.2670) Germany’s ability to sell a zero coupon bond is as much a product of its fiscal strength as it is of the external crisis. It is not surprising therefore that core countries are still opposing eurobonds on the grounds that they should be preceded by rules for stricter fiscal governance or include only countries with proven fiscal prudence. In this context we believe that EU Commissioner Rehn’s suggestion to make a road map to eurobonds is far-sighted; the starting point could be the bond that already exists, namely, EFSF bonds. They have shown that the backing by 17 eurozone countries with differing economic prowess does not necessarily undermine the attractiveness of the whole concept. This is only a eurobond ‘lite’ because each country only guarantees a little bit more than its own contribution, but it is a start. If the Wednesday’s summit agrees on project-based bonds, this would also be a step towards the fiscal liability sharing that IMF’s Lagarde stressed yesterday. Against the backdrop of a lowered OECD growth outlook, the IMF has thrown its weight behind the idea of eurobonds. The mutual exclusivity of nearterm growth and austerity has become clearer to many policymakers; the only question that remains is where the needle between the two must be set. The euros consolidation above 1.2610 still holds, but we believe that it will ultimately be broken. Thereafter, the euro would fall to 1.2490, and then to 1.2380. On the upside, the hurdles are now at 1.2795 and at 1.2940 (stabilisation).
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Deutsche Bank