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Business News for 1st February 2012 :: Euro drops to 16-month low over bank concerns

The euro fell to $1.2797 against the dollar and was at an 11-year low versus the yen.

Markets were unsettled after France's cost of borrowing rose and a Spanish minister suggested its banks may face a higher bad loan bill.

Bank stocks dropped, with shares in Italy's UniCredit at a 19-year low.

Luis de Guindos, Spain's economy minister, told the Financial Times that its banks may face up to 50bn euros ($64.2bn, £41.3bn) in new bad loans - higher than previous public estimates by the government.

On Thursday, Spain also unveiled more austerity measures - after outlining 8.9bn euros in new spending cuts and tax rises last week.

Spain said its social security deficit was worse than expected in 2011 and aims to recover 8.2bn euros that has been lost to tax fraud this year.

This is the latest in a wave of austerity measures, with a total of 16.5bn euros to be cut in 2012.

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