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Euro drops on EU's vague pledge to help Greece

(Agencies)
Updated: 2010-02-12 01:28

NEW YORKL: The dollar rose against the euro Thursday after European Union leaders made only a vague pledge of support for heavily-indebted Greece, raising questions about the strength of the eurozone union.

European Union president Herman Van Rompuy, speaking at a summit of 27 EU leaders in Brussels, gave no firm offer of financial aid to Greece and insisted that Greece hadn't asked for any.

"Euro-area members will take determined and coordinated action if needed to safeguard stability in the euro zone as a whole," he said.

The EU laid out no "concrete guarantee backstop" that the markets had hoped for, said Brian Dolan, chief currency strategist at Forex.com. "All they've done is throwing verbal political support behind Greek efforts."

The 16-nation euro dropped to $1.3614 in morning trading in New York from $1.3736 late Wednesday. It had traded above $1.38 earlier in the day on hopes of a firm reassurance that the Greek debt crisis would be contained. There are also worries about debts in other countries such as Portugal and Spain.

"The credibility of the single currency is clearly taking a knock," said Matthew Strauss, senior currency strategist at RBC Capital in Toronto.

Big deficits and sluggish growth in several European countries have led to market fears about defaults on public debt. The fiscal problems have sent the euro sliding this year and left investors worrying about the strength of the European monetary union.

But the EU may be hesitant to disclose in detail its plan to backstop Greek debt because other countries such as Ireland have had to make large budget cuts and tax increases and have not needed the EU to guarantee its debts.

There is renewed uncertainty about how far the EU is willing to go to help member countries, said Strauss. If Greece, or other euro-using countries, defaulted, it would raise questions about how sustainable the euro is --"whether it is truly a currency that could take on the US dollar."

Meanwhile, the British pound rose to $1.5628 from $1.5589, while the dollar dipped to 89.76 Japanese yen from 89.90 yen.