BBC News | Thursday, 25 March 2010 | 11:01 GMT
The euro has fallen to its lowest level against the dollar for 10 months as European Union leaders disagree on how best to deal with Greece’s debt crisis. Comments by the Bank of China’s deputy governor about high debt levels across Europe also pushed the euro lower. Against the dollar, the euro fell to $1.333, its lowest level since early May last year. Against the pound, it fell by 0.3% to 89.338 pence. EU leaders are meeting in Brussels, but Greece is not officially on the agenda. However, European Commission president Jose Manuel Barroso has repeated calls ahead of the summit for leaders to agree an aid package for Greece. Germany is unconvinced that Greece needs help. Greece itself has not asked for any direct financial assistance.
Deputy governor of the Bank of China Zhu Min was reported as saying the Greek debt crisis was just the "tip of the iceberg", which heightened concerns about high budget deficits in other European countries. Mr Zhu’s comments are "as good an indication as any of how rapidly fundamental concerns are growing about the eurozone", said Simon Derrick at Bank of New York Mellon. "Indeed, this comment might well signal the point that we stop talking about a ‘Greek debt crisis’ and start talking about a ‘eurozone structural crisis’ instead."
Although it is not known what proportion of China’s foreign currency reserves are invested in the euro, Mr Derrick told the BBC it was fair to assume that "a reasonable chunk is parked in the euro, with a large part [of that] in sovereign debt". "Obviously China will be sensitive to sovereign debt issues [in order to protect its investment]," he said. Greece has one of the highest budget deficits in Europe and there are widespread concerns about its ability to bring its borrowing down to a manageable level. Similar concerns exist about Portugal, prompting Fitch ratings agency to downgrade the country’s sovereign debt rating from AA to AA-. The euro fell sharply after Fitch announced the downgrade.