SUMMARY

• Some political parties in the eurozone actively embrace a return to legacy currencies. Though the probability of a country leaving the euro is very low, for investors it creates a disincentive to commit to long-term, cross-border investments and may hamper the formation of a capital markets union.
• We think the political sentiment could tilt the European Central Bank (ECB) toward winding down its quantitative easing (QE) programme before inflation convincingly reaches 2%.
• We don’t believe the euro is facing an existential threat. Indeed, we think voters will not elect anti-euro parties to government at this year’s elections. However, their positions and voters’ dissatisfaction with the euro could strengthen in the future.