The shared currency of the European Union slipped in value when held against the U.S. dollar on Friday, waning amid the fading afterglow of the debt deal from earlier this week, Bloomberg reports
Greece, the euro zone nation at the center of the sovereign debt crisis and is waiting for a second bailout since June 2010, will default on loan obligations as part of the debt deal finalized earlier this week in Brussels, according to Fitch Ratings. An auction of bonds from Italy, another nation struggling with debt obligations, conjured less than the maximum target.
The 17-nation single currency fell from its top value in seven weeks against the greenback despite the early Thursday morning announcement that euro zone leaders had reached an accord regarding the European Financial Stability Facility.
"After yesterday's colossal rally in risk assets, the market is taking a bit of a break as people realize that a lot of the problems in Europe are still not resolved," strategist Marc Ostwald with Monument Securities in London told Bloomberg on Friday. "Italy is still the particular wheel that looks most likely to come off and derail some of the euro-region euphoria. No one is going to be rushing back into Italian bonds, and they are still having to pay very high levels of interest."
For the past two years, the sovereign debt crisis has ravaged euro zone banks and public finance systems. The core nations victimized by the scourge are Portugal, Ireland, Italy, Greece and Spain, also known as the PIIGS. Germany and France, the region's biggest and second-biggest economies, respectively, have fulfilled responsibilities to lead the way toward recovery. But leaders in the euro zone also have drawn criticism for moving too lackadaisically regarding confrontation of the debt scourge.
France also is on notice as its banks might be exposed to large amounts of Greek debt risk.
But early Thursday, euro zone leaders announced the EFSF will hold 1 trillion euros as a strategy of isolating the debt scourge and preventing it from spreading elsewhere in the continent. They also announced bondholders agreed to cut their losses at 50 percent for Greek bonds.
Klaus Regling, the top official of the EFSF, visited China, the globe's second-largest economy behind that of the U.S. The Asian nation, also host of the globe's most rapidly developing economy, will purchase bonds issued by the EFSF, Regling said during a news conference in the Chinese capital.
"We all know China has a particular need to invest surpluses," the emergency fund's top official said, a reference to the Asian nation's foreign exchange
reserves amounting to $3.2 trillion, considered the globe's largest.
He predicted the extraordinary circumstances of the grandiose needs of Greece will not be replicated with other nations suffering from the sovereign debt crisis, Reuters reports. Voices of concern are growing regarding whether the EFSF will be large enough to endure the financial and economic sufferings of Italy and Spain, should those PIIGS nations delve deeper into the sludge pit of economic duress.
The Chinese investments in euro zone debt should impart a measure of confidence in the region's ability to bounce back, according to the finance minister of France.
"The reality is that China is the third largest shareholder in the International Monetary Fund, and if China via the IMF wants to participate - not by saving Greece or the euro - but by participating in investment, that is a gesture of confidence," Francois Baroin told RMC radio, according to Reuters. "What is happening in Europe and creating instability is that public and private investors are pulling out."