During a speech in Italy on Friday, ECB president Mario Draghi warned of the dangers of leaving the European Union.
Draghi’s main message was that a country leaving the EU or the single currency would not necessarily find greater sovereignty.
On this matter, Draghi said:
“Being outside the EU might lead to more policy independence, but not necessarily to greater sovereignty. The same is true of the single currency.”
The ECB chief also noted:
“Most countries would no longer benefit from local currency invoicing, which would exacerbate the effects on inflation if they undertook large exchange rate devaluations.”
Draghi also highlighted other risks, saying that countries leaving the EU “would be more exposed to monetary policy spill-overs from abroad – not least from the ECB itself – which could constrain their domestic policy autonomy.”
Draghi’s comments are extremely prescient given that Brexit is now just a month from happening. Furthermore, he delivered the speech in a country where eurosceptic tensions have been rising recently. This is reflected in the two anti-establishment parties currently sharing power in a coalition government.
There have also been significant wins for the far-right in regional elections. This is raising concerns about the upcoming European Parliament elections this year and the potential for the far right to gain further political standing.
The rally in the DAX saw price breaking above the local 11396.4 resistance level. Meanwhile, the recovery off the bearish channel low continues. Price is now fast approaching the next big resistance zone between 11690.8 – 11768.2 where we also have the 50% retracement from May 2018 highs.