Tags: investors | shun | euro | dollar

Investors Shun Euro as Doubts Grow

By Greg Brown   |   Thursday, 20 May 2010 09:47 AM

Not that many months ago, nobody wanted the dollar. The media was awash in stories of supermodels demanding to be paid in euros and tourist stops like the Taj Mahal refusing the greenback.

Now it’s the euro’s turn.

Investors around the globe are beginning to question the long-term prospects of the European Union’s single currency project, even as the euro continues to trade well above parity with the buck. The euro is still over $1.20 against the dollar, although it has slipped 14.6 percent in value so far this year.

ALERT: If the Euro and Dollar Collapse, What Happens to Your Wealth?

Pressing the euro now are big central banks which had fled to the currency to avoid a declining dollar, plus rising doubts about the EU’s ability to contain the Greek crisis.

Other southern EU states, such as Portugal and Spain, are slashing swollen budgets and raising taxes to get ahead of a spreading Greek contagion.

Countries like South Korea, Iran, and Russia hold hundreds of billions in euros, reports The Wall Street Journal, notes they might reconsider holding as doubts grow about the resolve — even ability — of the EU’s more stable members to maintain order.

Global mutual funds, too, are shifting out of euros, the newspaper reported, and major money managers, including bond giant Pimco, are sounding cautious on the currency. Reportedly, French President Nicolas Sarkozy in a private meeting threatened to pull France out of the monetary union, a killing blow if it were to occur.

Could there be a run on the euro?

A $1 trillion rescue package backed by EU governments and the International Monetary Fund sent European stocks higher soon after it was announced May 10, but skepticism kicked in after that.

"It buys time. We don't know if it will be enough. They're trying to give the impression that they're still united. They've bought some breathing space but that's all," Song Seng Wun, an economist with CIMB-GK Research in Singapore, told the Associated Press.

"This perhaps just postpones the inevitable. The euro may have to ultimately give way, that's the worst-case scenario."

Meanwhile, former Fed Chairman and Obama adviser Paul Volcker warns that the euro could slip into oblivion.

“You have the great problem of a potential disintegration of the euro,” Volcker said in a speech in London.

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Not that many months ago, nobody wanted the dollar. The media was awash in stories of supermodels demanding to be paid in euros and tourist stops like the Taj Mahal refusing the greenback. Now it s the euro s turn. Investors around the globe are beginning to question the...
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2010-47-20
 

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