Last updated: September 28, 2011 10:37 pm

Split on Greece knocks euro

The euro endured a volatile session on Wednesday as traders continued to track developments over a potential rescue package for Greece.

The single currency lost ground after a report in the Financial Times revealed a split had opened in the eurozone over the terms of Greece’s second €109bn bail-out with as many as seven of the bloc’s 17 members arguing for private creditors to take a bigger writedown on their Greek bond holdings.

The euro recovered somewhat after José Manuel Barroso, president of the European Commission, urged the European Central Bank to do everything in its power to maintain financial stability in the eurozone.

Mr Barroso called for a faster creation of a permanent eurozone rescue fund, and said that the European financial stability facility, its current bail-out vehicle, should be extended.

“The EFSF must immediately be made both stronger and more flexible ... Only then will it be able to deploy precautionary intervention, intervene to support the recapitalisation of banks and intervene in the secondary markets to help avoid contagion,” he said.

But some, however, doubted whether the remarks from Mr Barroso could lead to a sustained rally in the single currency.

“We want to stress that the European Commission is nothing more than the EU’s civil service – it can suggest and implement legislation but cannot make it,” said Elsa Lignos at RBC Capital Markets.

She added all big decisions had to come from member states which were not going to be rushed into signing blank cheques.

The euro resumed its slide by late-day in New York, failing to hold the $1.36 level amid reports that short-selling bans on banks would be extended, as well as a report that Otmar Issing, a former ECB official, said Greece would have to leave the euro.

The single currency slid 0.3 per cent to $1.3547 against the dollar, though it was still 0.1 per cent stronger against the pound at £0.8697. Meanwhile, the US dollar was up 0.4 per cent versus the pound at $1.5573,

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