Belfast Telegraph

Euro slumps to new low

Pound now buys €1.21 as zone’s economic woes continue

Bu Jamie Grierson

The euro fell to a 15-month low against the pound yesterday as pressure in the eurozone intensified.

A pound bought €1.21, while the single currency also hit a 16-month low against the US dollar, as economic woes in France, Spain, Italy and Greece came to the fore, fuelling fears over the ongoing crisis on the continent.

The drop in the euro will be welcomed by UK holidaymakers heading to the continent for winter breaks or on skiing trips, but will bring some concern to manufacturers, who have relied on a weaker pound to encourage exports to Europe, the UK's biggest trade partner.

Kathleen Brooks, research director at Forex, said “fear has reached fever pitch” in the markets as a number of catalysts damaged traders' appetite for risks.

Spanish banks will need to put aside an extra €50bn (£41bn) of capital to cover rising bad loans, according to a report, which also suggested the Government was not prepared to offer further help to ailing banks.

Meanwhile, Italy's largest bank, UniCredit, announced that it would offer stock at a 69% discount to raise cash — in a worrying sign of how much pressure banks are facing.

UniCredit is trying to raise €7.5bn (£6.21bn) to meet new European requirements for banks to strengthen their financial cushions against possible losses.

Italy, the recent focus of the debt crisis, must borrow to cover €53bn (£44bn) in expiring debt in the first quarter alone in debt auctions starting on January 13.

That will test whether the government of new Prime Minister Mario Monti is making progress in regaining market confidence through budget cuts and efforts to improve weak economic growth.

Banks are an integral part of the crisis as they hold government bonds. A default or steep fall in the bonds’ value could inflict heavy losses on banks and choke off credit to the European economy.

Elsewhere, a debt auction in France saw higher borrowing costs and lower demand than an auction at the start of December, which once again raised fears over the country losing its AAA credit rating. France sold €8bn (£6.6bn) of bonds at an auction, paying an interest rate of 3.29% to borrow for 10 years, up from 3.18% at the last sale in December.

Greek PM Lucas Papademos (left) told a US newspaper his country could default on its debts and even exit the currency bloc if it cannot deliver on promised economic reforms in the next few weeks. The troika — delegates from the European Commission, European Central Bank and International Monetary Fund — will visit Greece on January 16.

The troubling developments hit banking stocks as well as the euro, with Lloyds Banking Group falling 1% on the FTSE 100, along with Barclays, which lost 2%, and RBS which dropped 1%.

‘Greece could default on its debts and even exit currency bloc if it cannot deliver reforms’

Belfast Telegraph