Euro’s Fall to 16 Month Low Pushing Europe to become Aggressive about Debt Crisis Solutions

Recently, the euro – against the dollar – fell to a 16 month low, when Fitch Ratings issued a warning that there would be serious risks in case Europe did not take more aggressive steps to deal with the debt crisis it is going through. Along with the euro, global stocks too declined.

The warning, which served as a reminder about the issues in the European economy, was followed by a drop in oil prices. In this situation two assets gained – bonds and gold.

ECB should take Bold Steps to Prevent Currency Collapse

The euro slipped to $1.2261 after the sovereign ratings head at Fitch stated that the European Central Bank (ECB) had to take bolder steps to prevent the currency from collapsing. One way bank can do this is by purchasing the debt from the euro zone so it can support Italy. According to a chief market analyst at Commonwealth Foreign Exchange, the event risk is high. This has discouraged investors from opting for the euro.

Another factor that affected the euro was France’s possible shift to a triple A rating system. The euro was subjected to more selling when the German Chancellor stated that her country was willing to pay more as capital to a fund that has been planned to start this year. Called the European Stability Mechanism, it has been designed for bailing out EU countries in need.

Auctions in Spain and Italy, and Possible Failure of Bailout of Greece Adding Pressure

The ECB is likely to retain low rates, at 1%. It has started informing governments about the need for stepping up their actions so they can deal with the debt crisis in its 17 countries. Spain and Italy are set to carry out debt auctions. 2016 and 2015 papers will be sold by Spain for up to 5 billion euros. Italy will put up five year bonds for 4.7 billion euros.

The situation was not helped when bankers from the euro zone informed that discussions about the bailout of Greece by the private sector were not going well. In this situation, the US is most likely to keep its stock market’s performance independent of the issues in the euro zone and those faced by the euro.