Chancellor Angela Merkel spooked currency markets
on Wednesday as she tried to calm dismay among German conservatives
at the growing cost of shoring up the euro.
The euro dipped on forex markets below 1.2250 dollars for four
hours after she said on her party's website, "Naturally we have not
yet shaped the European project so that we can be sure that
everything will turn out well, that is, we still have work to do."
The remark - in a video - was standard fare for Merkel, who has
repeatedly played to her home audience by cajoling eurozone
neighbours to fix up their public finances, and she added in the next
breath, "I am nevertheless optimistic that we will succeed."
But forex markets interpreted the comment as betraying doubt about
the euro's future and sold off the currency, traders in Frankfurt
said.
Early in the day, the euro had topped 1.23 dollars. After Merkel's
comments, it tumbled, bottoming out at 1.2217 before recovering four
hours later to trade consistently above 1.2250 dollars.
The chancellor has recalled parliament from its summer holiday for
a vote Thursday on permitting a eurozone fund, the European Financial
Stability Facility (EFSF), to bail out Spain's banking sector with up
to 100 billion euros.
While the bill is certain to be passed, thanks to opposition
backing, some two dozen of Merkel's 330 legislators were likely to
break ranks, abstaining or voting against, embarrassing the
chancellor, political analysts predicted.
Merkel was upbeat when asked by reporters in Berlin if her support
was solid, saying, "From the signals I have been hearing, I'm feeling
optimistic."
Newspapers forecast some of the 620-seat parliament would be empty
during the vote. Bild, a daily, said at least 23 legislators,
including three government deputies, would be no-shows because they
were out of town on vacation or in medical treatment.
