Euro slides as reality sets in
By Pan Pylas |
May 14, 2010, Friday
|
Print Edition
Print Edition
THE euro soared after the European Union announced a startling US$1 trillion financial rescue package earlier this week. But that respite has evaporated - a sign that worries remain about the heavy debts burdening European governments.
The euro was back near 14-month lows yesterday, at US$1.2586, down 0.3 percent on the day.
That puts it within one US cent of where it was just before rumors of the bold EU move swept the market.
The euro spiked to a high of US$1.3048 on Monday, when the package of loans to be made available if struggling countries need them was announced. Policy makers were relieved that their "shock and awe" package had helped to shore up confidence in the shared currency.
Though the package has helped ease concerns of a wave of imminent debt defaults within the 16-country eurozone, currency traders are realizing the underlying problem has not gone away - how are the highly indebted countries going to get their public finances under control?
In particular, there are acute worries that the Greek government - however sincere it is - will just not be able to push through the draconian measures it has agreed to in return for an earlier, 110 billion euro rescue over three years, given the likely political and social unrest.
"The government will be attempting to implement nothing short of a cultural revolution amidst a depth of feeling that will not be assuaged with ease - if at all," said Neil Mellor, senior currency strategist at Bank of New York Mellon.
Those fears are unlikely to have been eased by comments made by Argentina's President Cristina Fernandez, who reportedly said earlier this week that the bailout will fail as the measures were a replica of the "recipes they applied to us, which provoked 2001" - a reference to the world's biggest sovereign debt default, by Argentina.
Alongside the lingering default fears, there are also questions regarding the European Central Bank's new role of buying government bonds in the secondary markets to maintain liquidity and keep yields low.
The euro was back near 14-month lows yesterday, at US$1.2586, down 0.3 percent on the day.
That puts it within one US cent of where it was just before rumors of the bold EU move swept the market.
The euro spiked to a high of US$1.3048 on Monday, when the package of loans to be made available if struggling countries need them was announced. Policy makers were relieved that their "shock and awe" package had helped to shore up confidence in the shared currency.
Though the package has helped ease concerns of a wave of imminent debt defaults within the 16-country eurozone, currency traders are realizing the underlying problem has not gone away - how are the highly indebted countries going to get their public finances under control?
In particular, there are acute worries that the Greek government - however sincere it is - will just not be able to push through the draconian measures it has agreed to in return for an earlier, 110 billion euro rescue over three years, given the likely political and social unrest.
"The government will be attempting to implement nothing short of a cultural revolution amidst a depth of feeling that will not be assuaged with ease - if at all," said Neil Mellor, senior currency strategist at Bank of New York Mellon.
Those fears are unlikely to have been eased by comments made by Argentina's President Cristina Fernandez, who reportedly said earlier this week that the bailout will fail as the measures were a replica of the "recipes they applied to us, which provoked 2001" - a reference to the world's biggest sovereign debt default, by Argentina.
Alongside the lingering default fears, there are also questions regarding the European Central Bank's new role of buying government bonds in the secondary markets to maintain liquidity and keep yields low.
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