The Euro dropped for a fifth month versus the dollar in the longest stretch of losses since November 2008 as fears that Greece’s deficit crisis would spread across Europe. The 16-nation euro touched a new one-year-low of $1.3115 on the forex market, following Standard &Poor’s decision to cut Spain’s credit rating- fueling concerns that the debt crisis was in fact spreading at an alarming pace. The S&P’s decision to reduce Spain’s credit rating from AA+ to AA came one day after the rating agency downgraded Greece’s credit rating to junk and lowered Portugal’s to the third-lowest investment grade.
Since the announcement that Greece’s budget deficit was more than 12% of the country’s GDP (3 times the EU’s allowed limit), the Euro has lost more than 7% of its value against the USD (on the forex market). However, the Euro’s tragic fall may soon come to an end as Greece, the source of the currency’s troubles, may have reached a historic deal with the Euro-Zone and the IMF regarding the country’s huge bailout package.
This morning, the Greek Prime minister vowed that his government “won’t allow the country to become bankrupt” while urging his countrymen to bear the harsh sacrifices need to mend broken public finances. Hours before an emergency meeting of euro-zone finance ministers, that is expected to approve the EU’s contribution to an international loan package worth about euro120 billion ($159 billion) over the next three years, the Greek government announced a new round of sweeping spending cuts through 2012. The measures are expected to include further hikes in consumer taxes, and deeper cuts in pensions and public service pay. The EU and especially the IMF also demand a significant overhaul of the civil service”We have no other choices and no time, so accessing the bailout is inevitable,” Prime Minister George Papandreou said in a televised speech at an extraordinary cabinet meeting.
The deal comes as Greece detailed even worse projections for its battered public finances. The bailout package represents the first rescue of a member of the 16-nation currency bloc by its fellow countries, a step that EU treaties explicitly discourage but which EU policymakers say is now necessary to save the euro zone from breaking apart. A meeting of euro zone finance ministers, scheduled for 1400 GMT today in Brussels, is expected to give its go-ahead to the aid, which could reach up to €120 billion ($160 billion) over three years and will come in return for tough austerity measures.
Greece and its international backers hope the deal can finally put an end to a crisis that has shaken (forex) markets worldwide, stoked fears of contagion to other euro zone members such as Portugal and Spain, and threatened the very existence of the single currency.
