Eurozone concerns force euro to 16-month low against dollar

The euro has slumped to a 16-month low against the dollar after renewed concern over the size of the banking problem in Spain and a French bond auction which failed to reassure markets. 

Reuters

The euro dropped after the bond auction in France sold its planned amount of long-term debt at modest increases in yields but with demand down considerably despite banks being flush with cheap money from the European Central Bank.

The ECB last month provided eurozone banks with 489.2 billion euros in three-year loans at one per cent interest in a bid to avert a possible credit crunch.

Meanwhile, Spain's new economy minister said on Thursday that banks may face up to 50 billion euros in bad loan provisions and he vowed to crack down on regional deficits in a new austerity drive.

The European Banking Authority said in December that Spain's five biggest banks required an extra 26 billion euros in capitalisation.

Investor concern also spread into the secondary bond market with Italian yields once again moving above the key seven per cent mark, a borrowing rate economists believe is unsustainable.

Standard & Poor's rating agency has threatened to downgrade most of the eurozone if it
judges the measures European leaders decided upon to strengthen fiscal discipline are insufficient to help resolve the debt crisis.