Renewed political, financial and economic instability emanating from Europe has again impacted the financial markets over the last few weeks. With domestically oriented US small-cap stocks, captured by the Russell 2000, making new highs European equities and in particular the Euro have turned down. To provide some historical perspective, more than 200 years ago Alexander Hamilton understood that forming an economic union with a common currency requires a single fiscal policy and Treasury, in contrast to the EU. That begs the question of how long before divergent economic interests among EU members leads to a loss of confidence in its currency the Euro.
Look for further tightening by the Fed in response to a strong US economy and increasing caution by the ECB in its monetary policy to create the conditions for a much sharper decline in the Euro further challenging the EU’s cohesion.
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