...The mere probability of the U.S. economy improving under Trump's presidency has financial markets bracing themselves for higher interest rates [as] it is now widely expected that the Federal Reserve will act on its plan to edge up borrowing costs further in December. If this comes to pass, the USD may appreciate further against other currencies, in particular the euro, [and] this should add to investor uncertainty as far as the euro's future is concerned.

Written by Thorsten Polleit 

One reason is that the yield gap between the U.S. and the euro is set to widen, making the euro less attractive vis-à-vis the greenback. On top of that, even if Mr. Trump's administration does not buy wholesale into the neo-isolationist ideology he espoused during the election campaign, it won't simply champion the cause of the globalists. As a result, the European integration project will be deprived of its most powerful intellectual and political advocate.

This should add to investor uncertainty as far as the euro's future is concerned. The United Kingdom's decision in June to do the "Brexit" has already dealt a heavy blow to people's confidence in the European Union being an economically and politically desirable institution. The chances of the project stalling are now even greater, and the ties that bind the union together may even unravel.

All this raises the question as to the single currency's raison d'être. Doubts about its viability will exacerbate the economic misery especially of weak euro member states. Investment in these countries will slow down, further suppressing production and employment. What is more, many euro zone banks engage in cross-border lending, and they will, of course, suffer if the euro's very existence is called into question.

Investors are already reluctant to extend new capital to ailing euro banks in view of their low profitability and sizable liabilities with so many bad loans on their books. More than ever, the weal and woe of euro banks is in the hands of the European Central Bank (ECB). However, the unhealthy liaison between the ECB and governments and banks in the euro area could now take a really bad turn.

On 26 July 2012, ECB president Mario Draghi pledged that "the ECB is ready to do whatever it takes to preserve the euro and, believe me, it will be enough." The ECB may now be forced to do exactly that: To buy ever greater amounts of debt against issuing ever greater amounts of money to prevent interest rates from rising and keep overstretched governments and ailing banks from defaulting on their obligations. If it turns out to be a regime changer - by doing away with economic practices hitherto held dear by the current establishment, - Mr. Trump's presidency could actually test the single currency to the breaking point.

A really plausible scenario is that sooner or later the ECB, desperately trying to prevent the euro debt pyramid from collapsing, pursues a policy of high inflation before the euro eventually falls apart.