21st Mar 2018

Top economist foresees currency crisis if France votes No

A top German economist has warned of serious economic consequences if there is a No to the EU Constitution in the 29 May referendum in France.

The chief economist at Deutsche Bank, Norbert Walter, told FT Deutschland that a French No might cause a currency crisis in the new member states.

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"There could be speculative attacks on currencies of the new EU member states", Mr Walter said. "These countries would then have to raise their interest rates. It could cause enormous exchange rate fluctuations", he warned.

Mr Walter explained that a rejection of the Constitution would jeopardise new member states' euro hopes, sparking the currency attacks.

The return on government stocks in the new member states have decreased heavily because investors believe that they will enter the euro quickly. The worry is that the process will now be reversed, writes FT Deutschland.

"One problem is that the EU has absolutely no strategy about how to react to a failure in the Constitution referendum," Mr Walter indicated. He added that a debate about closing the eurozone to any more new mebers is also conceivable.

Several countries are planning to have a referendum on the Constitution. Successive polls have predicted that the Treaty will fail in France and beyond, but the importance of France as a pioneer of European integration means that a French No could have grave implications for the 25-strong bloc.

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