MercoPress. South Atlantic News Agency

Euro falls to its lowest since April 2006; fears of double dip in the economy

EU Economic and Monetary Affairs Commissioner Olli Rehn

The Euro fell to its lowest since April 2006 even as European finance ministers sought to dissipate concern that spending cuts to combat the region’s debt crisis won’t cause a double dip in the economy.

The single currency weakened against 11 of its 16 major counterparts before a German report forecast to show confidence among analysts and investors in Europe’s largest economy deteriorated this month.

The Euro dropped to $1.2354 as in Tokyo, from $1.2395 in New York, when it fell as much as 1% to $1.2235, the lowest level since April 18, 2006.

The Yen strengthened against the euro on concerns that Europe’s plans to reduce fiscal deficits will erode growth, boosting demand for Japan’s currency as a refuge.

Spain unveiled on May 14 the biggest cuts in at least 30 years and Portugal followed a day later, pledging to slash wages and raise taxes. Italian officials said on May 16 that the government may make an extraordinary reduction in public spending, and France is slated to submit its latest spending and tax plans to the commission this week.

Only high-deficit countries including Spain and Portugal will be ordered to make additional deficit cuts, while budget policies will remain untouched in better-off nations, European finance ministers said after a meeting in Brussels.

“Not everyone will accelerate consolidation in a very uniform way,” European Union Economic and Monetary Affairs Commissioner Olli Rehn told reporters early Monday. “That would lead to a very restrictive fiscal stance for the euro area as a whole, which would risk depressing economic growth.”

The US Senate yesterday voted 94-0 for a proposal offered by Texas Republican John Cornyn to block International Monetary Fund loans to foreign governments that aren’t expected to be repaid.