Mumbai: The monetary strategy fight between European Central Bank and the US Federal Reserve is causing serious strains in the global financial system and could cause a huge crisis, according to Morgan Stanley analysts.

They warned of a possible replay of Europe’s exchange rate crisis - as seen in the 1990s - a report by UK newspaper Daily Telegraph said.

“The outcome of the 1992 deadlock was a major currency crisis and a recession in Europe,” the paper quoted Morgan Stanley analysts as saying.

The “striking similarities” they see between the transatlantic tensions then and now include a sinking dollar and rate cuts by the Fed while the Bundesbank (the euro was still to come in circulation) held steady.

The point of maximum stress could occur in coming months if the ECB carries out its threat to raise interest rates. It will be worse yet - for Europe - if the Fed backs away from expected tightening. “This could trigger another ‘catastrophic’ event,” the report warns.

Source : DNA