Euro plunges to 2008 levels

Merkel: Europe in ‘very serious situation

The euro fell to its lowest level
since the collapse of Lehman Brothers Holdings Inc. on concern that the
16-nation currency may be headed for disintegration.

The shared currency fell for a
fourth week versus the dollar and a third week versus the yen, the longest
losing streaks since February, as German Chancellor Angela Merkel said that
Europe is in a “very, very serious situation” despite a rescue package for the
region’s most indebted nations. European Central Bank Governing Council member
Axel Weber speaks on financial-market regulation next week in Berlin.

“We went through a massive
liquidation trade in Europe and risk-taking positions were wiped out across the
board,” said Sebastien Gaily, a currency strategist at BN Paribas SA in New York. “The markets
are trying to figure out what the consequences are for growth. There are
massive uncertainties and that will keep the downward pressure on the euro.”

The euro fell 3.1 percent to
$1.2358 this week, from $1.2755 on May 7. It traded as low as $1.2354 yesterday,
the weakest since October 2008. The common currency dropped 2.1 percent to
114.38 yen, from 116.81 last week. The dollar traded at 92.47 yen after gaining
1 percent last week, the first weekly gain since the five days ended April 23.

‘A Sham, a Chimera’

European policy makers last week
unveiled a loan package worth almost $1 trillion and a program of bond purchases
in an effort to contain a sovereign-debt crisis that has threatened to shatter
confidence in the euro. ECB President Jean-Claude Trichet said the move wasn’t
supported by all 22 of the bank’s Governing Council members.

The ECB said it will intervene in
government and private bond markets “to ensure depth and liquidity in those
market segments which are dysfunctional,” and central banks in Germany, Italy
and France
began buying government bonds yesterday. The ECB restarted a dollar-swap line
with the Federal Reserve.

By resorting to what some
economists have called the “nuclear option,” the ECB may open itself to the
charge it’s undermining its independence by helping governments plug budget

“The ECB’s supposed ‘independence’
has now been shown to be nothing more than a sham, a chimera, a
will-o’-the-wisp,” Dennis Gartman, a Suffolk, Virginia-based economist and
hedge- fund manager, said in his daily Gartman Letter on May 10. “In the end
the ECB and the euro will be punished for this decision to stand down from what
had previously been considered sacred.”