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Fears over Greek rescue deal sends euro down

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by Kay Mitchell
Fears over Greek rescue deal sends euro down

Investors continue to lose confidence in the euro after it fell further yesterday on fears over its rescue deal.

The euro was down by more than a cent (1%) against the US dollar, at $1.3376, while it lost half a penny against the pound to 87.820p.

The risk premium on Greek bonds also increased greatly.

Last month a deal was reached to help Greece manage its debt crisis. A rescue package totalling €22 billion (£20 billion) is set to include help from the International Monetary Fund (IMF).

So far the euro zone has avoided seeking an IMF loan for Greece, opting for a solution closer to home to maintain global confidence in the euro.

However, the involvement by the IMF is unlikely to lift the currency in the long-term, according to many analysts, with markets concerned that an IMF rescue will damage the euro’s credibility.

Euro zone nations and the IMF have promised to provide rescue funds if Greece cannot borrow from the markets, but Germany is demanding that any such lending should be at commercial rates.

Greek Finance Minister, George Papaconstantinou, refuted claims that he was trying to renegotiate the terms. However, his comments failed to prevent the market from hammering Greek bond prices.

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News posted: April 7, 2010

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