The European Central Bank issued a warning earlier about the dangers of requiring the private sector to take a more active role in sovereign debt bailouts. Germany has been leading the effort to include involvement by private bond holders, and the ECB thinks that such a move could put the entire eurozone at risk.
Back in July, eurozone leaders decide that private bondholders could stand a 21 percent loss from Greek debt. Now, though, Germany is hoping that private bondholders can do even more, and the country is encouraging other eurozone leaders to reconsider the deal, and put private banks on the hook for more.
The ECB is not taking the news well. Bank recapitalization is already expected in the eurozone, but the ECB leaders believe that forcing further private sector involvement would lead to a need for massive recapitalization — and damage the stability of the eurozone’s financial system.
The news, along with a dissipation of the risk rally from yesterday, is contributing to losses by the euro this morning. Euro is losing ground to the US dollar, as well as the Japanese yen. With investors in correction mode, and some of them even seeking safe haven, it is little surprise that the euro is losing ground.
At 13:08 GMT, EUR/USD is down to 1.3728 from 1.3795. EUR/GBP is down to 0.8754 from 0.8756, and EUR/JPY is lower at 105.56, down from 106.55.
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