The pound euro exchange rate is 0.211% lower on the day with 1 GBP = 1.1367 EUR. The euro dollar exchange rate is 0.500% higher with 1 EUR = 1.4059 USD. Read our earlier report on the likelihood of a Greek default this December. While the euro continues to trade higher against major currency pairs today in line with the risk-on sentiment on the equity markets there can be no doubt that the situation remains fragile. Indeed, periphery spreads have struck new wides this week as Europe returns to work after the summer break. "Data have continued to weaken, equities have tumbled and policymakers have crucial decisions to make. With fiscal and bailout fatigue again in evidence, EUR downside risks are intensifying," say RBS in a note to investors. The fact that the periphery is deteriorating more quickly and the core is experiencing a sharper slowdown simply highlights how troublesome the outlook remains as Europe struggles with its pro-cyclical tightening of fiscal policy. "A hard job is getting harder by the day," say RBS. All indication are that many of the peripheral euro-zone countries are increasingly dragging their feet over tackling budget deficits. "Nowhere is this more evident than in Greece, where GDP is no forecast to fall by 5% this year. The talks between the Greek government and the Troika of IMF, EU and ECB are reported to have broken down due to disagreements over how to meet fiscal targets as growth slows," say RBS. But Italy is now the bellwether. As in Greece, there seems little appetite for fiscal austerity in Italy. Proposals have been watered down significantly while the political situation remains problematic.

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