Sunday, May 8, 2011

Eurozone finance ministers are battling this weekend to contain a mounting sense of crisis about the future of the single currency as details emerge of secret talks on restructuring Greece's debts. Analysts expect a sharp sell-off of the euro when markets open tomorrow morning, as investors digest the fallout from reports – swiftly scotched – that Greece was considering leaving the eurozone. "Perhaps we have crossed a rubicon," said Jonathan Loynes, European economist at Capital Economics. "The knee-jerk response will probably be to push the euro lower. I believe the euro should be at parity with the dollar, not at $1.44 – I don't know what it's doing at anything like these levels." Euro policymakers at first denied that a meeting was taking place, but were later forced to admit that the German, French and Italian finance ministers had been holed up in a chateau in Luxembourg with their Greek counterpart George Papaconstantinou, discussing options for dealing with Greece's unsustainable debt burden. Rumours swept through financial markets late on Friday that Greece was threatening to leave the eurozone and reintroduce the drachma, but that was furiously denied by Athens yesterday.

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