Euro chaos as markets reel over rumours

Julian Harris
Follow Julian
NERVOUS investors jumped at every rumour yesterday, as politicians failed to calm the spiralling Eurozone crisis and choppy markets.

The euro gained against the dollar on reports of an impending “Merkozy” statement between Germany’s chancellor and France’s president.

But the single currency slumped back as President Sarkozy’s office denied that any joint statement would be made. Chancellor Angela Merkel soon emerged to reaffirm Germany’s commitment to the euro and warn against an “uncontrolled insolvency” in Greece – yet markets largely brushed her statement aside.

Merkel is expected to hold a phone conference with Sarkozy and Greek Prime Minister George Papandreou today to discuss Greece’s slide towards bankruptcy. Onlookers are increasingly impatient with the lack of progress.

“Despite meeting its interim target, the fact that the deficit widened despite the austerity measures illustrates how difficult it will be for Greece to meet the fiscal targets agreed with the troika,” warned IHS Global Insight yesterday.

Earlier in the day rumours of a Chinese intervention in Italy had boosted markets, yet this also proved temporary, as scepticism spread.

The Italian government’s new five-year bond raised €3.9bn, but at a cost of 5.6 per cent – up from 4.93 per cent from the last similar auction in July.

Yields on Italian two-years climbed nearly three per cent to 4.64 per cent.

“The ECB now seemingly has to decide whether to significantly up its purchases to guide yields back down, or accept much higher yields than it previously appeared to have wanted,” a note from Daiwa added.