The euro fell sharply in morning trading yesterday, as bond yields on the debt of eurozone periphery countries began to push higher.
This came after Germany rejected a call to issue a single eurozone bond, knowing it would be left as the final guarantor.
By late morning in London, the euro was down 0.9 per cent to $1.3261 against the dollar and had fallen 0.3 per cent against the pound to £0.8458.
Eurozone finance ministers meeting in Brussels yesterday, faced pressure to increase the size of a 750 billion euro safety net for debt-stricken members in order to halt the debt ‘contagion’ in the single currency bloc.
Before the meeting, Jean-Claude Juncker, chairman of Eurogroup of eurozone finance ministers, and Italian Finance Minister Giulio Tremonti made a joint proposal for a joint sovereign bond, or ‘E-bond’, to send a signal to markets and citizens of ‘the irreversibility of the euro’.
German government spokesman Christoph Steegmans did not agree. He told reporters at a pre-meeting news conference: ‘We see no reason at all at the moment for an increase in the size of the euro rescue shield, no reason at all.’
He also ruled out the ‘E-bond’ idea. Steegmans said: ‘The government rejects euro-bonds not just on economic grounds but also because that would require considerable treaty changes.’
Luxemboug prime minister Juncker and Italy’s Tremonti had claimed the ‘E-bond’ plan would lead to a ‘liquid global market for European bonds’, which would help protect countries from speculation and attract new capital flows into Europe.
German Finance Minister Wolfgang Schauble said introducing such joint bonds in the eurozone would not be possible ‘without fundamental changes’ in the European framework.
Meanwhile in Ireland, ahead of today’s budget, the Tánaiste Mary Coughlan confirmed that TDs and ministers will face cuts in their pay and pensions.
It is believed the cuts will be significant and the cuts in pensions will be graduated, with those on bigger pensions facing proportionately bigger cuts.
However, this will be nothing compared to the cuts that the budget will impose on the working class and the middle class.
Labour Finance Spokeswoman Joan Burton said that that despite her party’s opposition to some of the planned measures, it will be legally very difficult to ‘unpick’ the budget if the Finance Bill and Social Welfare Bill are enacted in law.
l The Federal Reserve Chairman Ben Bernanke has said the Fed could end up buying more than the $600bn in US government bonds it has committed to purchase if the economy fails to respond or unemployment stays too high.
Dismissing criticism of the policy, Bernanke told the CBS ‘60 Minutes’ programme: ‘This fear of inflation I think is way overstated. What we’re doing is lowering interest rates by buying Treasury securities.
‘And by lowering interest rates, we hope to stimulate the economy to grow faster.
‘The trick is to find the appropriate moment when to begin to unwind this policy. And that’s what we’re going to do.’
Bernanke said it would take four to five years for the US unemployment rate, which rose to 9.8 per cent in November, to come down to what he called more ‘normal’ levels of around 5-6 per cent.
