The euro hit a four-year low yesterday on fears that austerity measures would stifle recovery, as European finance ministers prepared to discuss tighter regulation a week after launching a US$1 trillion rescue plan.
German Chancellor Angela Merkel said on Sunday the rescue package had only bought the eurozone time to tackle its basic problem — a yawning gap between its strongest and weakest economies.
The euro slumped to a four-year low on Asian markets yesterday — hitting US$1.2243, its lowest point since April 2006 — after Friday's sell-off on Western markets, while investors sought safety in gold.
“It's the safe-haven thing. Gold doesn’t earn you any interest or dividends, but who cares? ... The eurozone is a house of cards,” a Europe-based gold trader said.
Bank shares in Greece, whose debt crisis prompted the rescue package aimed at stopping a spread to other vulnerable eurozone members and even destabilizing the global economy, tumbled 4 percent yesterday.
Greek Prime Minister George Papandreou was quoted as saying yesterday that he had written a letter to US President Barack Obama jointly with Merkel, French President Nicolas Sarkozy and Eurogroup chairman Jean-Claude Juncker on whether the market in credit default swaps should be closed.
Politicians have long called for tighter control of speculators, who they believe exacerbated Greece's borrowing problems by snapping up insurance that it could default.
However, Papandreou's call to consider closing the market for this insurance, known as credit default swaps, appeared to go further than anything demanded so far and would probably meet stiff opposition from companies and other bond buyers who depend on it to cover their risk
Papandreou's remarks come ahead of the meeting of European finance ministers in Brussels that is set to sign off tougher controls for hedge funds and private equity.
Britain has long sought to water down these rules although it is now possible that countries such as Germany and France will overrule London in a vote, forcing it to accept a stricter regime.
Also See: After a turbulent few weeks, the EU makes an historic gamble
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