The once-mighty euro, which briefly plunged to a four-year low against the dollar on Monday, may be doomed to keep falling whether or not European leaders can contain the region's roiling debt crisis.
The euro clawed back from a deep spiral in Asian trading Monday, closing down 0.2 percent at 1.239 against the dollar. But after its slide of almost 4 percent against the greenback over the past week, analysts say the euro's continued fall over the coming months may be inevitable given the economic turmoil gripping the region.
Assuming there is no full-blown run, the decline may not be all that bad for Europe -- a weaker currency, after all, would make German BMWs and Spanish wines cheaper overseas, heightening demand. By the same token, a surging dollar would make U.S. products less competitive.
For Europe, the real danger is yet to come. If the euro's fall accelerates, investors could begin to question the viability of what was considered the world's most ambitious monetary experiment when it was introduced 11 years ago. There could even be pressure to eject members of the 16-country eurozone if they cannot get their finances in order, although there is currently no mechanism to do so.
"There are still no guarantees the euro can pull through intact from this crisis," said Jane Foley, research director at Forex.com in London. "No matter how this goes, the euro is likely to suffer looking ahead."
The euro's fall was prompted by fears that the problems currently faced by Greece, with its mounting debt, will spread to other nations in the region, including Spain and Portugal. To ease those fears and prop up the euro, the European Union last week created a $1 trillion fund to help governments cope with their massive budget shortfalls and avoid defaults on obligations to investors. In addition, the European Central Bank agreed to buy up the debt of nations in crisis; it said Monday that it had already scooped up $20 billion worth of debt since last week.ad_icon
Still, the rescue plan is contingent on Greece and other nations slashing government spending. Doing so might help them close their budget gaps, but it will probably slow economic growth and increase unemployment.
With Europe already expected to see only minimal growth this year, some analysts fear that new cuts could push the region back into recession, triggering a continued fall in the euro.
Conversely, if nations in crisis fail to make painful cuts -- giving into public pressure and labor unions -- the euro's fall could be even worse. Nations including Greece would likely be forced into defaulting with investors, pounding the already troubled banks and pension funds, particularly in Germany and France, that hold much of their debt. The fallout could spark another banking crisis like the one seen after the collapse of Lehman Brothers in late 2008, but this time centered in Europe.
"The euro is caught between a rock and a hard place at the moment, and it is hard to see how it can extract itself from this uncomfortable position in the near term at least," said Howard Archer, chief European economist for IHS Global Insight in London.
A currency's value is a reflection of the strength and credibility of the country -- or, in the euro's case, countries -- that use it. One of the currency's biggest problems remains the vast imbalances within the eurozone, which includes economic powerhouses like Germany and minnows like Greece.
German Chancellor Angela Merkel on Sunday conceded that the $1 trillion fund had only bought the region time to harmonize those differences, particularly when it comes to government deficits. Germany is pressing its neighbors to adopt balanced budget laws similar to one, passed last year, that set a firm cap on its national deficit.
Yet narrowing transnational differences won't be easy, in part because there is broad dispute over the E.U.'s ability to implement fiscal limits. Last week, after the E.U. executive body suggested that governments submit their national budgets for review -- before handing them over to their own legislatures -- several leading French political figures immediately protested that such a procedure would be unconstitutional. Politicians from other European countries voiced similar complaints, in effect killing the suggestion before it got off the ground.
There is a silver lining to the euro's decline. One of the biggest problems for countries such as Greece and Spain is the relative strength of the euro compared with their now-defunct national currencies -- a gap that has made their exports far less competitive. As the euro drops in value, particularly against the dollar and the Japanese yen, Greek cheeses and Spanish olive oils are becoming more cost-competitive exports.
"I think the bigger story is that the euro hasn't fallen more than it has given the kind of pressure it has come under," said Jakob von Weizsäcker, a fellow at Bruegel, a Brussels-based economic think tank. "This drop could actually help with the adjustment process that Europe needs to go through, and make the region healthier in the long run."
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US President Barack Obama to set up oil spill panel
They say the panel will also examine industry practices and the government's role in the disaster.
The news comes as a top coast guard official warned the leaking oil may reach the southern Florida coastline.
Separately, the oil giant BP says it plans to start pumping large amounts of mud into the damaged oil well in an effort to close it altogether.
Oil has been spewing into the Gulf since BP's Deepwater Horizon rig exploded on 20 April.
BP said on Monday it was managing to funnel the equivalent of 1,000 barrels a day of oil from the well to a tanker ship with the use of a mile-long tube.
That would amount to a fifth of the estimated daily spill of 5,000 barrels - an estimate made by the coast guard and BP.
Resignation
Mr Obama would establish a presidential commission by executive order, White House officials were quoted by news agencies as saying.
I think we ought to be cautious in terms of defining what plumes are out there and how they're behaving
Lamar McKay
BP's America president
US media see trouble ahead
The officials, who spoke on condition of anonymity, said the commission would be similar to panels created to investigate the space shuttle Challenger disaster in 1986 and the nuclear accident at Three Mile Island in 1979.
It would also study oil industry practices, rig safety, regulation and governmental oversight, including the functions of the Minerals Management Service (MMS) - the agency responsible for regulating offshore oil drilling.
Meanwhile, senior MMS official Chris Oynes said on Monday that he would step down at the end of this month.
Mr Oynes has been accused of becoming too close to the industry his agency monitors, the BBC's Madeleine Morris in Washington reports.
However, there has been no official comment on the reasons for Mr Oynes' resignation.
'Loop current'
Also on Monday, Rear Adm Peter Neffenger told the US Senate that the oil spill may reach Florida's coastline.
Tarballs of oil found on a beach in Pass Christian, Mississippi, 12 May
Tarballs of oil are said to be more manageable
Any oil that does wash up is likely to be in the form of tarballs which are a "little easier to manage", the top coast guard official said in a testimony at the Senate Committee on Homeland Security and Governmental Affairs.
Rear Adm Neffenger also said that the government was closely watching whether the oil would be swept up into the "loop current" that moves around Florida.
"Currentlyit shows to be somewhere in the neighbourhood of 40-50 miles (65km-80km) from the southern edge of the spill," he said.
"We are watching that carefully and as a result of that we are preparing for potential impact on the southern Florida coast and impacts around the southern Florida coast."
Homeland Security Secretary Janet Napolitano also appeared at Monday's hearing, the first time senators were able to question officials about the response to the 20 April disaster.
She said the government was monitoring the loop current very closely and were treating it as if it were a coastline.
"In other words... if we were to see that the oil really was beginning to move toward the loop current we would begin doing some things in the way of dispersant and booming... as if the loop current itself were a piece of the coast," she said.
Senator Joseph Lieberman, who chairs the committee, said at the hearing that the government should not allow any new deep water wells to get permits or be drilled until the industry could prove it can prevent another failure of drilling equipment in deep waters or contain oil spills more effectively.
Plume questions
BP's America president, Lamar McKay, returned to the Senate for the hearing, having already faced questions along with other oil industry executives last week.
Scientists said on Sunday they had found vast underwater plumes of oil, one 10 miles (16km) long and a mile wide, lending weight to the fears of those who believe the actual spill could be many times greater than the estimate of 5,000 barrels daily.
But Mr McKay told senators: "I think we ought to be cautious in terms of defining what plumes are out there and how they're behaving."
The US National Oceanic and Atmospheric Administration cast doubt on the plume reports, saying no definitive conclusions had been reached because the findings were unverified.
But, in a joint statement, Ms Napolitano and Secretary of the Interior Ken Salazar said the latest technique was "not a solution to the problem and it is not yet clear how successful it may be".
BP also said on Monday it had received 15,000 claims for compensation, and had already paid out on 2,500 claims. Experts warn that BP's total liability for the spill could run into billions of dollars. look at yourself
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The news comes as a top coast guard official warned the leaking oil may reach the southern Florida coastline.
Separately, the oil giant BP says it plans to start pumping large amounts of mud into the damaged oil well in an effort to close it altogether.
Oil has been spewing into the Gulf since BP's Deepwater Horizon rig exploded on 20 April.
BP said on Monday it was managing to funnel the equivalent of 1,000 barrels a day of oil from the well to a tanker ship with the use of a mile-long tube.
That would amount to a fifth of the estimated daily spill of 5,000 barrels - an estimate made by the coast guard and BP.
Resignation
Mr Obama would establish a presidential commission by executive order, White House officials were quoted by news agencies as saying.
I think we ought to be cautious in terms of defining what plumes are out there and how they're behaving
Lamar McKay
BP's America president
US media see trouble ahead
The officials, who spoke on condition of anonymity, said the commission would be similar to panels created to investigate the space shuttle Challenger disaster in 1986 and the nuclear accident at Three Mile Island in 1979.
It would also study oil industry practices, rig safety, regulation and governmental oversight, including the functions of the Minerals Management Service (MMS) - the agency responsible for regulating offshore oil drilling.
Meanwhile, senior MMS official Chris Oynes said on Monday that he would step down at the end of this month.
Mr Oynes has been accused of becoming too close to the industry his agency monitors, the BBC's Madeleine Morris in Washington reports.
However, there has been no official comment on the reasons for Mr Oynes' resignation.
'Loop current'
Also on Monday, Rear Adm Peter Neffenger told the US Senate that the oil spill may reach Florida's coastline.
Tarballs of oil found on a beach in Pass Christian, Mississippi, 12 May
Tarballs of oil are said to be more manageable
Any oil that does wash up is likely to be in the form of tarballs which are a "little easier to manage", the top coast guard official said in a testimony at the Senate Committee on Homeland Security and Governmental Affairs.
Rear Adm Neffenger also said that the government was closely watching whether the oil would be swept up into the "loop current" that moves around Florida.
"Currentlyit shows to be somewhere in the neighbourhood of 40-50 miles (65km-80km) from the southern edge of the spill," he said.
"We are watching that carefully and as a result of that we are preparing for potential impact on the southern Florida coast and impacts around the southern Florida coast."
Homeland Security Secretary Janet Napolitano also appeared at Monday's hearing, the first time senators were able to question officials about the response to the 20 April disaster.
She said the government was monitoring the loop current very closely and were treating it as if it were a coastline.
"In other words... if we were to see that the oil really was beginning to move toward the loop current we would begin doing some things in the way of dispersant and booming... as if the loop current itself were a piece of the coast," she said.
Senator Joseph Lieberman, who chairs the committee, said at the hearing that the government should not allow any new deep water wells to get permits or be drilled until the industry could prove it can prevent another failure of drilling equipment in deep waters or contain oil spills more effectively.
Plume questions
BP's America president, Lamar McKay, returned to the Senate for the hearing, having already faced questions along with other oil industry executives last week.
Scientists said on Sunday they had found vast underwater plumes of oil, one 10 miles (16km) long and a mile wide, lending weight to the fears of those who believe the actual spill could be many times greater than the estimate of 5,000 barrels daily.
But Mr McKay told senators: "I think we ought to be cautious in terms of defining what plumes are out there and how they're behaving."
The US National Oceanic and Atmospheric Administration cast doubt on the plume reports, saying no definitive conclusions had been reached because the findings were unverified.
But, in a joint statement, Ms Napolitano and Secretary of the Interior Ken Salazar said the latest technique was "not a solution to the problem and it is not yet clear how successful it may be".
BP also said on Monday it had received 15,000 claims for compensation, and had already paid out on 2,500 claims. Experts warn that BP's total liability for the spill could run into billions of dollars. look at yourself
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