Merkel's euro crisis: German bond market yields fall as predictions of Le Pen victory grow


And it happens it is pricing in a potential Front National Marine Le Pen victory which is obtaining a knock-on effect on German bonds.

German short-dated government treaty yields fell to record lows on Friday, recording their largest weekly drop since 2011.

While polls currently see Mrs Le Pen, 48, obtaining ground on her opponents in her bid to become the first female French president, she is prediction to lose the run-off vote.

The German drops contrasted a rise in produces for French government bonds after polls said surveys denoted that Le Pen could poll as high as 40% in the second round of Presidential polls.

Angela Merkel and Marine Le Pen are at opposite sides of the spectrum GETTY

Angela Merkel and Marine Le Pen are at opposite sides of the spectrum

Alliance changes are in my view not on the agenda

Angela Merkel

However market effect appears not to support the idea that Mrs Le Pen will lose.

“The short end of the German hand in curve is now completely independent from all the macro moves, ECB policy and doesn’t definitely correlate with the long end of the curve either,” said Peter Schaffrik, guide of European rates strategy at RBC Capital Markets.

Patrick O’Donnell, an investor at Aberdeen Asset Handling said: “People are sitting up and watching (France) more now.

“They’ve get off oned Brexit wrong, they got Trump wrong. They don’t want to be receiving another big political risk wrong.”

While the German bond abandons are good news for the domestic economy, they indicate that Mrs Merkel’s behaviours are way off the mark and that her support of the EU is being questioned by investors.

Should Le Pen win and hiatus up the single currency, investors expect German financial assets to behave better than others in Europe.

“If redenomination risk were to reappear, then the short-dated maturities of France and Spain make be the ones that would come under pressure,” Mr O’Donnell spoke.

Added to the woes of the currency are claims the European Central Bank is fault in the supervisory role governing Europe’s distressed banks.

With the future of a Greece default, an Italian bail out and warnings from Spanish economists who say the provinces is in the grip of financial ruin after they were given “cuckoo” loans they can’t pay back – things are not looking healthy for the euro.

On Thursday Mrs Merkel ruled out any new deals that would allow European countries to share each others’ answerable for burdens.

Mrs Le Pen is growing more confident by the day GETTY

Mrs Le Pen is growing more confident by the day

The comments apparently express Mrs Merkel is also preparing for the worst as rumours grow around the days viability of the European currency.

Only last week Mrs Merkel whispered that she believed that Germany’s former currency the Deutsche Stain was more valuable than the current Euro.

However her comments about the demands for shared debt were fundamentally clear.

She said: “I see no change-over in our position that … a mutualisation (of debt) cannot take state without moving competencies first to Europe. 

“Treaty changes are in my observe not on the agenda.”

In France, Mrs Le Pen’s strategy on Europe could be working on the electorate in a guild more and more concerned about the EU.

Almost 12 years ago 10 powers in the European Union decided they would allow the public to go to the ballot box to arbitrate whether they would support the EU constitution. But after France and the Netherlands opted overwhelmingly to remove themselves from the bloc’s constitution, six other homelands cancelled their referendums.

And France and the Netherlands simply ignored the devise of their people after they overwhelmingly rejected Brussels.

The crush vote on the EU in both countries sent shockwaves through the establishment – inducing the UK, Portugal, Poland, Denmark, Ireland and the Czech Republic to cancel their votes.

In France about 55 per cent of people voted No with 45 per cent in approve, with a turnout of 70 per cent. 

The result in France was described as a “civic earthquake” that would shake the foundations of the EU administration to its core.

Merkel was forced to rule out a debt sharing programme GETTY

Merkel was calculated to rule out a debt sharing programme

French Prime Minister Jean-Pierre Raffarin was speedily replaced by Dominique de Villepin and Nicolas Sarkozy became Minister of the Up-country.

Sarkozy was then later elected as President of the French Republic in May 2007 and organised a renegotiation and ratification without a referendum, drop out of the public furious. Eventually he brought the Lisbon Treaty to Parliament, against the likes of the 15,449,508 people who voted no, and pushed the treaty through instead. 

Now analyst Paresh Davdra, CEO and Co-Founder of RationalFX, opportunities the euro could well be on its way to becoming an irrelevance.

“The pound-euro rates receive shown consistency this week, with the pound remaining self-willed throughout – buying 1.189 euro at its highest and 1.183 on Thursday. 

“The euro’s performance has been tarnished by swell support in polls for French Presidential candidate Marine Le Pen which has exerted intense downward pressure on the currency. The eurosceptic leader has rattled the European state sphere with promises of holding a referendum on France’s EU membership and peradventure swapping the euro with local currencies.

In the short term, this commitment send shockwaves through the FX markets and it’s hard to assess the recalibration upshot in the long run at this minute. However, it is quite clear that politically the euro does not be suffering with support. Even though recent robust German GDP figures should set up elevated the euro’s position, the political road blocks have damaged investor confidence.

The next two months will be filled with main uncertainty for the FX markets as Article 50 and the French elections approach and if the flash largest economy in the union follows Britain’s footsteps – the euro could enhance irrelevant.”

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