It was a black Friday for the euro and Europe’s stock markets which slumped 3.5 percent because of fears that euro zone countries’ austerity measures could stifle the region’s economic growth.
Despite the massive European safety net for Greece, Spain and Portugal those countries’ shares were under siege.
After Madrid closed down 6.64 percent, euronews business reporter Constantino de Miguel said: “There was a massacre in the Spanish market today. Investors feel the Spanish government is trapped in a vicious circle: by raising taxes and cutting salaries of public servants, the Spanish economy will contract, therefore providing less tax income for the state, which will,in turn, find it yet more difficult to pay off its debt. All this is damaging the euro, which has plummeted to the level it was at after Lehman Brothers went bankrupt back in November 2008.”
At one stage the euro slid to $1.2365 as the EU’s emergency assistance plan failed to bolster confidence.
“The euro hasn’t derived any benefits from any budget cuts from Spain and Portugal,” said Chris Turner, head of FX strategy at ING.
“People are either concluding that these cuts will be unsuccessful and debt sustainability remains a key issue, or they will be successful in aggressive fiscal tightening and that these economies would slow aggressively and the European Central Bank has to keep interest rates low,” he added.
He is forecasting the euro will be at $1.15 in six months time.
The instability in the foreign exchange markets pushed the price of gold to a new record high.