Euro rises after Merkel rejects Greek bankruptcy

AP News
Posted: Sep 13, 2011 4:00 PM
Euro rises after Merkel rejects Greek bankruptcy

The euro rose modestly against major currencies after German Chancellor Angela Merkel rejected the idea of a hasty bankruptcy by Greece.

Merkel said Monday that Europe should help Greece regain its financial footing. She rejected suggestions that Greece should seek court protection from its creditors.

Bankruptcy would allow Greece to cancel some debts, but it would also threaten European banks that own billions in Greek bonds. Merkel's comments made a default by Greece appear less likely.

At 3:05 p.m. Eastern time, the euro was worth $1.3693, up from $1.3585 late Monday. It rose to 105.25 Japanese yen from 104.93 late Friday.

The euro hit a seven-month low against the dollar on Monday and a ten-year low against the yen. German officials had suggested that a Greek bankruptcy might be the solution to Europe's problems.

Greece is weighed down by its debt load and appears increasingly likely to default. It relies on financial lifelines from its neighbors, especially France and Germany. Some European leaders appear reluctant to release the next round of bailout cash because Greece is having trouble meeting its deficit-cutting goals.

Banks in Greece and elsewhere own billions in debt issued by the Greek government. If Greece defaults, with or without bankruptcy protection, the value of those bonds would plunge. That could hurt Europe's largest banks, which hold government-issued bonds in reserve as a cushion against losses.

Europe's economy already is growing at a painfully slow pace. A shock to its financial system could easily tip the region back into recession.

The threat of a recession or financial crisis makes the euro less attractive to traders. Euros would be useful for buying stocks of European companies or bonds from governments that use the shared currency. Traders have responded by buying up safer currencies, such as the dollar, the Swiss franc and the yen.

Stocks in Europe rose on Tuesday after Merkel's comments and word of a planned phone call between the leaders of Greece, France and Germany. The euro's rise signaled that some traders believe they can profit from European investments.

In other trading, the British pound fell to $1.5791 from $1.5813 late Monday. The dollar fell to 0.8789 Swiss franc from 0.8866 late Monday.

The Australian dollar rose to $1.0312 from $1.0271. The dollar traded flat against the Canadian dollar.