2010-06-08 09:44

EURO DOWN

Investors fled peripheral euro zone government stocks and bonds last week because of doubts about how the euro rescue mechanism would work and worries about the solvency of European banks exposed to the sovereign debt crisis.

World share prices dipped further on Monday. U.S. stocks closed lower in thin volume, and the euro fell below $1.20 for the first time in more than four years.

Concern about political stability in Spain, one of the troubled euro zone economies, fed market anxiety.

Juncker and Rehn said they were more concerned by the pace of the euro's decline than by the lower exchange rate, and the IMF said a currency long seen by many as too strong was now closer to what economic fundamentals justified.

"But rigidities, especially in labor and financial markets in some countries, are limiting the necessary restructuring in the aftermath of the global crisis," it said in a report.

Germany needs less than others to slow spending but, keen to set an example, will pursue savings of 30 billion euros over four years in welfare, mainly from unemployment benefits, and will cut thousands of federal government jobs.

The new savings are unlikely to please some of Germany's partners, including the United States, which pressured Berlin at a G20 meeting in South Korea to stimulate domestic demand.

Despite the efforts in Luxembourg to reassure markets, German Chancellor Angela Merkel postponed talks with French President Nicolas Sarkozy on reforming governance of the euro zone. Officials cited diary problems.

The two had been due to patch up their differences over the euro zone and financial regulation, 10 days before an EU summit. The meeting will take place next Monday, German officials said.