The euro tumbled to a nine-month low against the pound yesterday as the latest attempt to solve the debt crisis tearing through the single currency bloc fell flat.
Borrowing costs in Italy and Spain surged to dangerous levels, and shares around the world sank on another day of panic on the financial markets.
It came as confidence in the eurozone’s ability to tackle the debt crisis crumbled in the wake of last week’s summit in Brussels. ‘It’s pretty ugly out there,’ said Kathleen Brooks, a research director at currency firm Forex.com.
Sell sell sell: The euro fell more than 1 per cent against the pound and to a nine-month low of 84.6p
European leaders – with the exception of Prime Minister David Cameron – agreed to stricter budget rules and a stronger fiscal union in a desperate bid to shore up the single currency.
But critics pointed out that the eurozone still lacks the firepower needed to protect debt ridden countries such as Italy and Spain.
‘We have a nice agreement,’ said Victoria Cadman, an economist at Investec. ‘But does any of this solve the euro crisis? No, it doesn’t. We still sit here searching for the big bazooka.’
The euro fell more than 1 per cent against the pound and to a nine-month low of 84.6p. It was down 1.5 per cent against the US dollar to around $1.32. Italy’s 10-year bond yield – the interest rate the government pays to borrow – raced back above the 7 per cent level that triggered bailouts in Greece, Ireland and Portugal. In Spain, it edged above 6 per cent amid fears that Rome and Madrid will be the next dominos to fall.
Ratings agency Fitch said the failure of EU leaders to come up with a ‘comprehensive’ solution has increased pressure on the credit score of eurozone countries.
Europe has been braced for a wave of credit ratings downgrades since Standard & Poor’s warned on the eve of last week’s summit that 15 countries could be cut.
All six AAA rated countries in the eurozone – including Germany and France – could be stripped of their top notch rating, S&P said.