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April 14th 2005

Referendum on EU expansion looms

Despite a recent decline, the Euro has appreciated against the USD for several consecutive years. Although the American twin deficits are certainly to blame, many credit strong EU fundamentals for the Euro’s appreciation.  Many investors have confidence in the EU as a credible threat to American economic preeminence. They have faith in EU-member economies, and in the stability of the Euro. Accordingly, many investors have been pouring money into eastern and central European economies, guided by the belief that these nations will soon be invited to join the EU. This tremendous inflow of capital has kept interest rates low and caused many currencies to appreciate in value. A referendum is currently scheduled for May 29, to determine whether the EU should be expanded to include more nations. France and the Netherlands have already leaked the distinct possibility of a ‘no’ vote. This would put a severe damper in investor’s expectations for Europe, to say the least. The Science Daily reports:

A French "No" in the referendum… means the momentum of Europe is halted. It means that future EU enlargement is put on hold. It also suggests that the political commitment of European voters to the EU future is a lot weaker than that markets assumed, which puts a crack into the credibility of the euro.

Read More: France’s No threatens currency chaos

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Posted by Adam Kritzer | in Euro | No Comments »

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