The euro takes a nosedive

Have you ever watched your money go down the drain? Well, I did last week, after exchanging a rather large sum of dollars for euros, right before the euro lost 20 percent of its value. The euro took a nosedive to reach a four-year low against the dollar. Some people may have made a killing, but I lost a small fortune. I'm decidedly grumpy about Greece this week, and about the trillion-dollar rescue package designed to bail out the country's sovereign debt and save the euro. As it turns out, so is The Economist.

To keep the debt crisis from spreading to Spain and Portugal, European leaders have agreed on a rescue package worth €750 billion. In the short term, the bond markets have calmed. However, the single currency was built on a "no bailout clause" connected to a "stability and growth pact". European political and economic regulations are negotiated continuously, but monetary stability was guaranteed by a non-negotiable set of rules that have now been broken. As The Economist points out, the rescue package gives the weaker euro-zone governments a liquidity lifeline not intended by the architects of the single currency. This may continue to undermine the euro, even as European taxpayers foot the bill to save it. The euro is expected to continue its decline, especially against the steadily rising Japanese yen, before it bottoms out or rallies.

Now seems like a good time to review talking about currency fluctuations. Practise the expressions used above in our exercise on the next page.

Anne Hodgson