The euro's value is falling conspicuously. Compared with the highs in the last quarter of 2009, Europe's unified currency has dropped from around ¥135 to ¥122, and from about $1.52 to roughly $1.37, losing nearly 10 percent against the yen and the dollar. What is causing its fall and where will it go from here?
The first of the several causes behind the euro's decline is the political trouble in the euro-zone economies. The cost of guaranteeing loans against default has risen sharply in light of the rising risk being attached to Greece's snowballing sovereign debt. European Union leaders said Feb. 11 that they would support Greece's fiscal reconstruction efforts and pledged to "take determined and coordinated action, if needed, to safeguard financial stability in the euro area as a whole."
This message promising all-out action to maintain trust in the common currency gave the EU's leaders some breathing space, but the fact remains that it will be tough to implement the Greek government's plan to bring its debt-to-GDP ratio from 12.7 percent in 2009 to 8.7 percent in three years. Spain and Portugal face similar problems, and even Germany and France have budget deficits that exceed the EU's common standards.