In mid-May 2010 the euro fell to its lowest level against other currencies since 2006. In Asian markets the euro was quoted at 1,2234 against the dollar on Tokyo’s stock exchange and 112,73 against the Japanese yen.
Asian markets were responding to the panic in Europe over the euro’s fragility, beginning to panic in their turn. The Tokyo stock exchange fell by 1.98% on the 16th of May. Other Asian markets fell further: Shanghai 2,60%, Hong Kong 2,47% and Taipei 2,20%. Sydney fell by 2.82%.
European finance ministers were busy plannning to meet on the 17th of May to come up with further action or statements that might encourage the markets. Despite the establishment of a multi-billion-euro fund – in effect a European Monetary Fund to operate like a mini-IMF – markets and investors remained unconvinced about the future strength of Europe’s single currency. The EMF might be agreed by Europe’s leaders and money was on the table to bail out other indebted euro zone nations beside Greece if necessary, but fears centred on the prospects for growth in European countries. Ironically, the fears were made worse by moves to implement public-debt-reducing austerity measures in stricken Greece and in Spain, Portugal and Italy. How would growth take place in economies restricted to reducing spending and paying off debt?
Hideaki Inoue, of Mitsubishi UFJ Trust and Banking, warned that the markets were doubting whether “imposing austerity measures was really the best thing to do given the negative effect that will have on [Europe’s] economy.”
He explained that despite the creation of the EMF “investors are worried about prospects for the real economy in several European countries.”
Daisuke Karakama, analyst at Japan’s Mizuho bank agreed:
“The markets know that the EMF’s 750 billion euros is just ‘playing to the gallery’…The markets don’t have confidence in the euro.”
Karakama noted that the euro was falling against other currencies despite the measures taken by German Chancellor Angela Merkel, French President Nicolas Sarkoy and other European leaders to prop it up.
In Europe, leaders attempted to reassure markets and investors yet again.
The French minister for the economy, Christine Lagarde, said the euro was “not in danger” and stressed that the euro zone countries intended to “defend their currency.”
The European Commission’s German energy minister, Günther Oettinger, insisted that “the greatest threat to the euro is behind us.”
Nevertheless, Europe’s leaders know it is not enough to throw billions of euros at debt-ridden euro zone members. Their meeting on the 17th of May must begin to address the problem of European economic growth.