As the largest economy in the euro-zone and the world’s third largest exporting country behind the US and China it comes as no surprise that the fate of the floundering currency bloc all but rests in German hands. The main financier of the European Union has the deciding vote when it comes to key decisions but it isn’t struggling Greece or uncertain Spain which most concerns the euro-zone heavyweight, China is the nation causing worry in Berlin.
Germany’s economy is slowing and a mild recession is predicted for the usually infallible nation but German policy makers regard such a development as unlikely unless the situation in China should worsen. Although still in a better situation than many nations caught up in the global slowdown growth in China has stumbled and as the nation is the main importer of goods produced in the euro-zone this is a real concern. Recent reports have also indicated that the currently escalating tensions between China and Japan could not only injure trade relations between the two countries but have a damaging effect on worldwide economic recovery. Although the euro has rallied slightly following the positive developments of recent weeks its situation is still a precarious one.
One unnamed senior politician described the current predicament in sporting terms: ‘At the moment the bloc is like a group of skittles. Some are unstable and there is a danger that one falls over and knocks the others down with it. But we don’t know which one it will be. It could be the Greek skittle or the Italian one of the Chinese one. Or there could be a skittle flying in from the outside such as a Chinese one.’
To continue this metaphor, European Central Bank president Mario Draghi has pledged to do everything possible to prevent a strike occurring, but if China should be hit there is little the euro-zone skittles could do but tumble.
That being said, the power Germany wields over the currency bloc should not be underestimated. Earlier this year Germany, under the leadership of dominant chancellor Angela Merkel, watched the 17 nation euro-zone teeter on the brink of collapse after halting proposals for European governments to unite in guaranteeing governmental borrowing and banking deposits. Germany’s ability to calm the markets was similarly pronounced after it recently reversed it’s position regarding the European Central Bank purchasing the debt of troubled nations.
Officials in Berlin have also indicated that Germany has decided Greece should remain in the euro-zone so despite continued opposition from other nations a Grexit appears increasingly unlikely.
The Pound to Euro exchange rate is currently trading at 1.2447
The Pound to US Dollar exchange rate is currently trading at 1.6265
The Pound to Australian Dollar exchange rate is currently trading at 1.5552
The Euro to US Dollar exchange rate is currently trading at 1.3067
The Euro to Pound exchange rate is currently trading at 0.8033
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