Chaos in Greece drives euro to 3-week low

AP News
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Posted: Jun 15, 2011 4:05 PM
Chaos in Greece drives euro to 3-week low

Investor concern that Greece was moving closer to a default on its debts that could have serious repercussions on Europe's banks drove the euro to its biggest one-day drop since early May.

European financial officials are at a stand-off on terms of a long-term deal to keep Greece from defaulting on its debts. Riots in the country Tuesday underscored its people's opposition to further budget cuts demanded by Greece's lenders in return for loans due in mid-July, which it needs to stave off default.

The government's majority shrank, which could hinder agreement on austerity measures and keep the country from being able to receive its next batch of aid. A resulting default could push up borrowing costs for other troubled countries and ignite a European banking crisis.

The euro fell below $1.42 for the first time since May 27. In late trading in New York Wednesday, the shared currency was worth $1.4169 from $1.4468 late Tuesday, a swoon of more than 2 percent and the biggest one-day drop since May 5.

Currencies are known for big swings in value within short periods, but Tuesday's move far surpasses the usual volatility.

Greece's debt problem is causing a lot of nervousness. Greece got a euro110 billion ($160 billion) bailout last year from the eurozone countries and the International Monetary Fund but continues to struggle financially. More bailout loans are under discussion.

"The market is nervous because brinksmanship is dangerous," said Marc Chandler, the head of currency strategy for Brown Brothers Harriman in New York. Europeans are pushing their fight on whether to force bondholders to "share the burden" in a new aid deal closer and closer to mid-July, when the International Monetary Fund is supposed to release more aid to Greece.

The IMF requires an agreement and more budget cuts by Greece before distributing the loans.

During an emergency meeting Tuesday, eurozone finance ministers could not agree on terms for a second bailout for Greece.

Credit ratings agency Moody's on Tuesday warned that it may downgrade its debt rating on three of France's largest banks because of their exposure to Greek debt.

The Greek prime minister said he would reshuffle his Cabinet and seek a vote of confidence for his new government in an effort to pass the necessary budget cuts.

In other trading Wednesday, the dollar gained broadly as investors sought safety. The dollar is often considered a safe-haven currency. The British pound fell to $1.6175 from $1.6386. The dollar rose to 80.97 Japanese yen from 80.52 yen, and gained to 0.8534 Swiss franc from 0.8440.

The U.S. dollar rose to 98.15 Canadian cents from 96.80 Canadian cents and was higher against the Scandinavian currencies, the Australian dollar and most other actively traded currencies around the world.