Euro Declines on Concern Greece Bailout May Fail to Get Support

May 3 -- The euro fell for the first time in four days against the dollar on concern a 110 billion-euro ($146 billion) bailout package for Greece will fail to win support from some of the region’s governments.

Europe’s common currency slumped versus most of its 16 major counterparts as German Chancellor Angela Merkel began making a public case for her citizens to aid Greece. The pound fell as polls signaled neither of the U.K.’s two biggest parties will gain a governing majority in this week’s election.

“The euro is just patently overvalued,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York, who predicts a decline to $1.30 this month. “My complaint is that the package requires some extremely harsh austerity measures that simply won’t be put into place.”

The euro dropped 0.8 percent to $1.3191 at 1:19 p.m. in New York from $1.3294 last week, after earlier touching $1.3361, the strongest level since April 27. The 16-nation currency traded at 124.94 yen from 124.78. The dollar was at 94.70 yen from 93.85 yen.

Mexico’s peso rose as the European Union and International Monetary Fund’s approval yesterday for the Greece aid package for Greece boosting demand for higher-yielding, emerging-market assets.

Loan Approval Timeline

EU leaders are scheduled to meet on May 7 to discuss the timeline of parliamentary approval for loans to Greece. Germany is due to debate the plan on the same day.

“The euro fell because the package hasn’t been approved yet and there’s dissension in the ranks,” said Jessica Hoversen, a Chicago-based analyst at the futures broker MF Global Holdings Ltd. “The real fear is that Greece won’t be able to make the budget cuts.”

Aid for Greece is of “enormous” importance, Merkel told reporters in Berlin today after convening a special meeting of her Cabinet that approved loans for Greece of as much as 22.4 billion euros ($30 billion) over three years.

“It doesn’t only mean that we help Greece, but that we stabilize the euro as a whole, which helps people in Germany,” Merkel said.

The chancellor canceled two campaign rallies today in North Rhine-Westphalia, where polls show her party struggling to retain power at a May 9 vote, to give back-to-back interviews on N24, ZDF and ARD television channels.

Required Cuts

Greece’s three-year financial lifeline requires the nation to cut its budget deficit below the EU limit of 3 percent of gross domestic product by the end of 2014, a year later than originally planned. The deficit was 13.6 percent last year, the region’s second-largest after Ireland. The austerity measures include a second set of wage cuts for public workers and a three-year freeze on pensions.

“There’s never been a country that’s undertaken to save so much and there’s never been a country that’s succeeded in saving so much,” said Lutz Karpowitz, a currency strategist at Commerzbank AG in Frankfurt. “It’s very, very negative.”

Unions in Greece representing more than 500,000 civil servants called a 48-hour strike starting May 4 to protest what they have called “savage” budget cuts. Local government workers called a strike for today. Teachers are also on strike from tomorrow and a general strike, the third this year, is planned for May 5.

‘Terrific Recession’

“For Greece, this means terrific austerity and terrific recession,” Marc Faber, publisher of the Gloom, Boom & Doom report, said in a Bloomberg Television interview in Hong Kong. “The euro will remain weak, and there’ll be more bailouts,”

Futures traders are more bearish than ever on the euro, suggesting further declines ahead for Europe’s shared currency. Hedge funds and other large speculators raised net wagers on a euro drop by 25 percent to 89,013 contracts in the week ended April 27, Commodity Futures Trading Commission data show.

The euro has depreciated 7.6 percent against the dollar this year, including last week’s 0.7 percent loss, on concern the sovereign debt crisis will slow Europe’s economy.

Mexico’s peso rose 0.5 percent to 12.2509 per U.S. dollar from 12.3109 on April 30. The peso has strengthened 6.7 percent in 2010, the best performer against the dollar of the 16 major currencies tracked by Bloomberg.

“Greece was creating certain pressure for the peso last week because there was still a lot of doubt,” said Rafael Camarena, an economist with Banco Santander SA in Mexico City. “The market today is taking into account that finally a plan to rescue Greece was cemented.”

Britain’s pound dropped for a second day, falling 0.2 percent to $1.5250, as surveys by YouGov Plc and ICM Ltd. today showed Prime Minister Gordon Brown’s Labour Party narrowing the Conservatives’ advantage in popular support and retaking the lead in the forecast number of seats in Parliament. The election will be held on May 6.