Euro Falls as Debt Deal in Jeopardy

The euro declined 0.4 percent to $1.3855 in late-day trading as it became increasingly unlikely that European Officials would arrive at a finalized plan for dealing with the growing European debt crisis during a meeting today in Brussels. German Chancellor Angela Merkel even went so far as to blunt expectations for a deal saying “the work’s not been done yet”.

One of the sticking points that continues to elude resolution is the question of the write-down percentage Greek bond holders will be forced to accept. Earlier rumors placed the “haircut” to be 50 percent – this is far greater than the 21 percent banking representatives suggested as being acceptable.

The spotlight also turned to Italy where, yesterday, the coalition government led by Prime Minister Silvio Berlusconi failed to implement a series of spending cuts imposed by European Union officials. The Italian government had agreed to reduce spending in exchange for a pledge by EU members to continue to buy Italy’s bonds. As a result of the government’s failure, Berlusconi spent the day working on a plan to demonstrate to EU officials that the government does have a credible plan to meet the spending reduction targets.

In addition to these developments, media outlets in Italy are reporting that Berlusconi has informed his coalition members that he will resign as Prime Minister by the end of the year. This was immediately denied by the Prime Minister’s office but pressure is mounting on the current administration.

Italy’s debt has ballooned to 1.9 trillion euros ($2.6 trillion) and is now equal to 120 percent of the country’s annual Gross Domestic Product.

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