Debt crisis spills into Spain, propels dollar

May 25, 2010 19:04

Over the weekend, the debt crisis leached into Spain, a much larger European economy, as the Spanish central bank bailed out a regional bank. Late Monday, four other regional Spanish banks said they would combine because of insolvency worries.


The euro sank close to a four-year low against the dollar Tuesday as bank troubles in Spain highlighted the vulnerabilities spreading through Europe’s financial system.

The euro came within half a penny of the four-year low of $1.2146 set last Wednesday. By late afternoon in New York, Europe’s shared currency rallied back from Tuesday’s low of $1.2176 to trade at $1.2315 but was still down from $1.2398 late Monday.

The euro has dropped about 15 percent this year as the debt crisis in Greece roiled credit markets, forcing the International Monetary Fund and the European Union to put together a nearly $1 trillion financing deal to stem fears of default from spreading to otmandher countries.

But the deal quickly triggered concerns about European economies contracting because of the cuts in government spending and higher taxes that are mandated by the aid package.

On Tuesday, the Italian and Danish governments paved the way for spending cuts, while Queen Elizabeth II laid out the U.K.’s austerity plan. European countries are slashing budgets in hopes of convincing investors that they can manage their debt loads.

“If there was a doubt about it, there isn’t any more. The European debt crisis is not simply a Greek phenomenon,” said Marc Chandler of Brown Brothers Harriman in New York.


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