Conflicting news from Cyprus and Germany shakes the euro


(Source: Yahoo! Finance)

In what is becoming an even starker contrast, the diverging fortunes of Eurozone members have rattled the euro today (pictured above against the dollar). News that the Cypriot vote is unlikely to pass, even if it occurs and that a Plan B is being considered, clashed with ZEW survey data that saw German economic sentiment rise to 48.5 from 48.2, the fourth consecutive monthly increase.

ING's Carsten Brzeski:

The positive contagion in financial markets continues to comfort financial analysts. Over the last four weeks, financial conditions for the German economy have improved further. Oil prices dropped somewhat, the euro weakened by more than 2% and the German stock markets increased by almost 4%. At least in Germany, Mario Draghi’s positive contagion seems to spill over to the real economy. The start to the year was still a bit jolty with retails sales and exports up but new orders down. However, the economy should gain further pace in the coming months.

The experience of the last years has shown that as long as the euro crisis is simmering on a low flame, the German economy remains a crisis beneficiary. However, as soon as the crisis boils over and German businesses and consumers start to worry about the future of the Eurozone, the economy also suffers. Judging from today’s ZEW reading, the Italian elections fell in the first category. Let’s now hope that Cyprus will not fall in the second.