Euro weakens as crisis continues

The euro weakened for a seventh successive day against the dollar as Greek politicians struggled to form a new government after elections raised the prospect of the country withdrawing from the currency bloc.

The 17-nation single currency extended its longest run of declines against the dollar since Sep 2008 as German chancellor Angela Merkel rejected government stimulus as the way to spur economic growth, setting up a clash with French president-elect François Hollande.

The pound dropped against the dollar as a report showed British house prices fell in April. Australia’s dollar declined after the trade deficit widened.

A currency strategist at Wells Fargo&, Vassili Serebriakov, said: “This stalemate in Greece in terms of the elections not leading to a successful formation of a new government is clearly a concern, especially against some of the euro rhetoric of the smaller parties. We’re clearly in a risk-off environment right now.”

The euro declined yesterday to the weakest level since Jan 25. The shared currency dropped 0.4% to 103.89 Japanese yen. It slipped to 103.24 yesterday, the lowest since Feb 16.

Alexis Tsipras, whose Syriza party placed second in Greek elections on May 6, said he would forge ahead with plans to form a coalition government of left-wing parties after he was handed the mandate by President Karolos Papoulias.

Tsipras said he wouldn’t agree to join forces with New Democracy and Pasok, the two Greek parties that have supported austerity measures in return for international funds.

He called on the leaders of both parties to withdraw their pledges to impose the terms in writing by tomorrow when he is to meet with both of them to discuss forming a government.

A left coalition government would nationalise banks to spur growth, repeal recent labour reforms and immediately cancel the bailout accords, he said.

“When you have the guy who’s supposed to form the coalition saying that there’s a moratorium on debt limits, that the bailout is not necessarily in place — stuff like that is getting people a little skittish,” said Brian Kim, a currency strategist in the US at Royal Bank of Scotland. “There’s a shadow that’s being cast and there seems to be an overall more mixed and more downbeat tone to the market.”

Hollande’s platform calls for policies which Merkel opposes, including increased spending and delayed deficit cuts.

The chancellor invited Hollande to Berlin for talks “as soon as possible,” after his election victory on Sunday.

“This discussion is not whether we should pursue consolidation or growth, it’s completely clear that we need both,” Merkel told reporters in Berlin yesterday.

Greece could exit the euro bloc as soon as next month, according to John Taylor, founder and chief executive of hedge fund FX Concepts in New York.

“The Europeans aren’t going to give them the money, the International Monetary Fund isn’t going to give them an OK. They’ll be out of money in June.”

The euro has weakened 4% over the past six months. The dollar rose 2.7%, and the yen dropped 0.4%.

— Bloomberg

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