Euro exchange rate today: EUR stabilises but Eurozone financial crisis resolution muddied as economists say 'sinner states' should not be supported

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Published on Friday, 06 July 2012 08:53

Written by Sam Coventry

International Money Transfers at our sister site

"Gigantic losses are foreseeable from financing the southern countries' inflationary economic bubbles" - 174 economists balking at the thought of a unified European banking system.

The euro (Currency:EUR) has this morning stabilised following yesterday's dramatic drops. The next test for markets is this afternoon's US non-farm payroll data release.

The euro dollar exchange rate is unchanged at 1.2392 at 9:40 AM in London.

The euro pound exchange rate is 0.12 pct lower at 0.7972. (Our IMT site publishes the latest FX forecasts, access Free via this Facebook entrance path).


A resolution to the Eurozone financial crisis has been further muddied by a group of 172 leading economists who have written an open letter to Angela Merkel warning her that her decision to agree to allow Eurozone bail-out funds to support 'sinner states' was 'wrong'.

The economists, who included Hans-Werner Sinn, head of Ifo, the influential think tank, argued that the German chancellor had taken a dangerous step towards a "banking union".

More specifically, in the letter, published by the German daily Frankfurter Allgemeine Zeitung, the economists said: "Banks' debts are nearly three times higher than government debts . . . the taxpayers, retirees and savers in the so-far solid countries of Europe must not be made liable for backing these debts, particularly since gigantic losses are foreseeable from financing the southern countries' inflationary economic bubbles."

They added that they viewed the "step toward a banking union, which means collective liability for the debts of the banks of the eurosystem, with great concern", The Telegraph says.

Yesterday saw the ECB cut rates by 0.25 pct - an expected event.

However, the euro took a beating when ECB President Draghi briefed the press:

"Draghi also said he welcomes the measures from the EU Summit to alleviate market tensions and that the ECB is ready to “serve as an agent” to the EFSF and the ESM in this regard.

H"owever, he effectively ruled out ECB funding to the ESM at this stage by noting that the ECB “works within the limits of its mandate” and going beyond that would “destroy its credibility”. He added that he wants to keep the risks for the ECB balance sheet “very low”.

"This triggered the jump in Italian and Spanish yields during the press conference. We believe the impetus will now be back on the political establishment to follow up on their recent agreements, starting with the next Eurogroup meeting."