The euro tumbled to its lowest level in nearly two years last night as Spain’s deputy prime minister said the future of the single currency was at stake.
The euro fell three-quarters of a cent against the US dollar to $1.2468 – its weakest showing since July 2010. It dipped below 80p against the pound.
Shares in Madrid also slumped – the benchmark Ibex index was down another 2.3 per cent having hit a nine-year low on Monday – as the banking crisis in Spain raised the prospect of the eurozone’s fourth largest economy needing a bailout.
Sinking feeling: The euro fell three-quarters of a cent against the US dollar to $1.2468 – its weakest showing since July 2010
The gap between borrowing costs in Spain and Germany reached a record high as investors dumped more risky Spanish debt and fled to safety. Spain’s 10-year bond yield was 6.5 per cent compared with a new low of 1.35 per cent in Germany.
Interest rates on Spanish debt are close to the 7 per cent danger zone that triggered bailouts in Greece, Ireland and Portugal. It came as investors – already nervous about Greece quitting the euro – fretted about the cost of propping up Spain’s creaking banks and debt-ridden regional governments with the economy deep in recession.
Spanish deputy Soraya Saenz de Santamaria said: ‘If the EU doesn’t reinforce the eurozone, it’s not about who leaves, it’s about the EU itself. It’s about the future of the euro.’
Fresh figures showed that retail sales in Spain were 9.8 per cent lower last month than in April 2011 – the 22nd month of decline in a row and the biggest year-on-year drop on record.
Cash-strapped Madrid is now looking at ways to prop up the country’s banks – Bankia has asked for £15bn – and distribute money to the regions.
The threat of catastrophe in Spain added to the uncertainty about the outcome of Greek elections in just over two weeks and an Irish referendum on the EU fiscal treaty tomorrow.
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