Euro Drops After EU Commission Resignations
- By Leonard Santorelli
- Mar. 17 1999 00:00
LONDON -- The euro fell sharply against the dollar on Tuesday after the 20-member European Commission resigned en masse over a scathing independent report into corruption.
The euro's plunge was the main focus in currency markets where the dollar was under fire from the yen as the Nikkei surged above 16,000 points for the first time since last August amid optimism about Japan's economic recovery.
But the EC crisis seemed to have do little damage to equity markets. Frankfurt was up more than 1 percent and London and Paris were little changed. A record close on Wall Street helped build up momentum.
It was the same story in capital markets where European bond prices advanced with traders disregarding the mass resignations after initially dipping on the news.
The fledgling euro was also weak against sterling and yen, dragged down by the commission's mass resignation at midnight. It plunged the European Union into crisis just days before a summit on key budget reforms.
The euro fell as low as $1.0816 before recovering slightly as traders digested the report which accused the commission of losing control of the sprawling Brussels bureaucracy that proposes and implements EU legislation.
The crisis comes just weeks after the launch of the euro single currency and shortly before EU leaders meet in Berlin, on March 24 and 25, to overhaul the bloc's 85 billion euro ($93 billion) annual budget ahead of an ambitious expansion into east Europe.
"It's a political quagmire. The resignations have depressed euro/dollar rates, it's likely to test recent lows," said James MacKay, head of research at Commonwealth Bank Australia in London.
Concerns about economic growth in the euro zone, weighing on the single currency since it started life on Jan. 1, pushed it to a lifetime low of $1.0780 on March 5.
The resignations were the latest setback for the euro. Last week's departure of Oskar Lafontaine as German finance minister hit the currency's credibility.
"The euro is losing credibility with the instability on the political stage," a trader at European bank in London said. "It might take its time testing the lows, because the market will start worrying about EU central bank intervention."
Traders said markets Tuesday were helped by Wall Street but the EC crisis acted as a brake.
In Frankfurt, the Xetra DAX climbed 1 percent to 5,090.93 as the shot-in-the-arm from Wall Street soothed apprehension about the EU resignations.
London's FTSE 100 slid 0.1 percent after earlier gains that were boosted by strong New York and Tokyo markets and a flurry of merger activity among medium-sized companies. Paris stayed flat.