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article imageEuro drops over economy concerns

By Amanda Payne     Jan 5, 2012 in World
The value of the euro dropped against other currencies on Jan 5 with its lowest rate against the yen in eleven years and a big drop against the U.S. dollar.
The BBC reports that the markets are unsettled following incidents such as the cost of borrowing in France rising, bank stocks in Italy dropping and Spain unveiling more austerity measures.
The Financial Times reports that Spanish economy minister Luis de Guindos says that Spanish banks need €50 billion in extra provisions. The figure of €50 billion represents about 4 percent of GDP in Spain. However, the minister is quoted as saying "In the great majority of cases, they can provide it themselves from their profits … and it could be done not in one year but over several years. We have a property problem in Spain, but it’s manageable … This €50bn is about 4 per cent of Spanish GDP. This is not Ireland. It’s a completely different order of magnitude.”
Spain also faces the problem of a deficit of 668 million euros in the Social Security system, the first time there has been a deficit since 1999. The Deputy Prime Minister Soraya Sáenz de Santamaría, in a report in El Pais, said that the newly elected government had been warned by the outgoing Socialist government that there was a problem but said that the Popular Party had not expected such a big deficit.
In other European countries, France sold €7.66 billion in government bonds on Jan 5, slightly less than had been expected by financial experts. Italian bonds rose above 7 percent which caused investors to worry, leading to significant drops in shares in Italian banks on the Milan stock exchange. The Eurozone problems are affecting non- EU countries such as Hungary which has seen protests in the street as its currency, the forint, also tumbles. Hungary is another country that is desperately looking to the EU and IMF for assistance.
What seems certain is that governments in Europe will have a lot of work to do in 2012.
More about Euro, economic crisis in europe, bank stocks dropping, el pais
 
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