This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Weaker Euro May Be Good News for Draghi, European Central Bank

NEW YORK (TheStreet) -- The good news for Mario Draghi, president of the European Central Bank, is that the value of the euro dropped has dropped below $1.32. In May, the Euro was trading above $1.39.

Investors are expecting that the euro will fall further, now placing more bets in the futures market that the Euro will decline than at any time in the past two years.

Read More: 10 Stocks George Soros Is Buying

Although Draghi has resisted moving to any form of quantitative easing, he made some remarks at the Federal Reserve's Jackson Hole meeting that the market has interpreted as a sign that he is giving more consideration to such a policy in the future.

As I have written before, it would not be surprising if, in the current situation, the value of the euro fell below $1.30 before the end of the year. This would represent a drop of almost 7% from its May highs.

Draghi has been reluctant to move toward a policy of quantitative easing, even though he has faced tremendous pressure to do so, basically because the evidence from the U.S. experiment has not been that encouraging when it comes to achieving faster economic growth.

There is one aspect of the American quantitative easing effort that might be of interest to Draghi at this time. Quantitative easing in the U.S. provided a massive amount of liquidity to the financial markets, making it easier for banks with underwater assets to hang on until they could unload securities or be closed or merged in an orderly fashion.

Currently, European banks are not as healthy as banks in the U.S. For various reasons, bankers in Europe have not cleaned out their portfolios as well as their counterparts in the U.S., and according to many reports feel that they are now in a position to get rid of a lot of undesirable securities so as to strengthen their portfolios and capital positions.

And this appears to be a good time for such a restructuring, as yields on a great deal of European debt are at historic lows. The 10-year German Bund closed to yield 0.94% yesterday. The 10-year Italian bond closed only 153 basis points above that, a spread that was a post-crisis low and with a total yield of 2.47%, an historical low since the eurozone was formed.

Read More: Biotech Stock Boom Times Are Back

However, if banks began to "dump" securities at this time, there could be some upward reaction in interest rates. Draghi might want to assure investors that such sales would not cause market disruptions that would upset these portfolio adjustments. Some form of quantitative easing might provide the appropriate assurance.

Draghi also talked at Jackson Hole about the need for eurozone countries to make structural reforms to make themselves more competitive in world markets. This seems to be happening.

Matteo Renzi, the Italian prime minister just returning from vacation, tweeted that he was getting back to his post-holiday to-do list. One item was to privatize some of Italy's assets. Renzi has positioned himself as a leader of European economic reform. His plans for privatizing assets has evolved into the effort to restructure entities like the national postal service, the state-run ship-builder, and companies in the energy and utilities field, before selling off parts of them to the private sector. These efforts are being well received.

What Renzi is doing can also serve as an example to others... especially to France. Yesterday, Francois Hollande, the French president, asked his prime minister Manuel Valls to form a new government after some heavy criticism from his economics minister. It is expected that the new government will lean more to the center of the political spectrum and act more pragmatically in devising an economic program that will fight the economic stagnation of the country and produce more reforms to France's structural problems. It will be helpful to have a successful Italy leading the way.

Draghi should be take a little comfort from these developments. These are the most optimistic things that have happened in the eurozone in some time.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
AAPL $124.43 -1.54%
FB $82.22 -1.18%
GOOG $548.00 -0.73%
TSLA $188.77 -0.94%
YHOO $44.44 -1.15%


DOW 17,776.12 -200.19 -1.11%
S&P 500 2,067.89 -18.35 -0.88%
NASDAQ 4,900.8850 -46.5560 -0.94%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs