Sunday 24 September 2017

Euro hits six-month low as Greece takes tough stance on new bailout

Donal O'Donovan

Donal O'Donovan

THE euro plunged to a six- month low yesterday and shares in London, New York and Paris as well as Athens all tanked. It comes as fears of a dangerous new stage in the euro crisis grips investors.

A new hardline stance from Greek politicians pressing to renegotiate the country's second bailout was the main trigger for the plunge in markets.

The euro tanked against world currencies for a seventh straight day -- slipping to US$1.2955 at one stage, the weakest since January.

The single currency itself is now the new barometer of investors' fears.

Now the euro is bearing the brunt of an evaporation of economic confidence driven ultimately by fears that the currency union is itself unsustainable in its current form.

It's the latest phase in a crisis that initially saw investor confidence in bank shares and house prices collapse, before money managers began to dump the debt of euro-area countries.

The latest crisis comes as Greek politicians struggle to form a new government after elections on the weekend.

The new parliamentary arithmetic has heightened the risk of the country leaving or being forced out of the euro by rejecting lender-imposed budget cuts.

The hardline in Greece met an equally tough response among lenders, with German Chancellor Angela Merkel rejecting calls for government stimulus as a means of containing the debt crisis.

The euro dropped against the Japanese yen, UK sterling as well as the dollar.

Greece could exit the euro as soon as next month, if the country misses loan repayments falling due this month and in June. The crisis also fed through into the global stock markets , yesterday, sending Wall Street to a two-month low and wiping out all of this year's gains to date in London and Paris.

The Greek stock exchange was the hardest hit, down 3.6pc yesterday to hit the lowest level since November 1992. Oil, a key indicator of economic confidence, weakened for a fifth day to US$96.18 a barrel -- a welcome respite for some but no use to Irish buyers as their euro sinks in value at the same time.

Gold was also weaker, while investors bid up the prices of so- called "safe haven" investment such as German bonds and US government bonds

While Greece is the main driver of weakness, confidence is being hit by weak corporate earnings and signs of a rift between the two biggest eurozone economies.

The threat of a Franco-German split over how best to tackle the crisis has loomed since "anti-austerity" socialist Francois Hollande was elected French president.

"This is dragging the situation out even longer and makes it less likely that the progress that has already been made will continue," said Mark Foster, who helps manage $500m at Kirr Marbach & Co in Columbus, Indiana.

"The situation in Europe could get worse before it gets better," said James McDonald, chief investment strategist at Northern Trust.

In the bond markets Irish government debt suffered the worst day for months as prices for short-term debt in particular fell. The drop in demand sent yields on five-year bonds up by quarter of one percent to 5.4pc.

Irish Independent

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