2012 Euro Forecast
The euro sank to a 15-month low against the dollar on Thursday as the European Central Bank (ECB) reportedly stepped in to prop up Italian bonds following an auction that revived fears Italy may be unable to refinance its huge €1.9 trillion borrowings. For the first time since early May 2010 markets seem to see an existential threat to the euro, pushing the sovereign debt crisis into its most dangerous phase yet. Global deleveraging will aggravate downward pressure on the euro, and lack of growth in the eurozone will make this difficult for financial institutions in euro area countries.
Based on the blackbox graph it is likely that by April 2012 – if not before – the German government and the ECB will have to relent and bring the latter’s balance sheet fully to bear if a euro break-up is to be avoided.