The euro fell for a third day versus the yen and slid against the dollar before European leaders meet to discuss the Greek debt crisis today amid concern a default would risk spreading contagion to other countries in the region. The single currency headed for a second weekly drop versus the dollar and the yen after Luxembourg’s Jean-Claude Juncker said a “haircut” for holders of Greek securities would have unpredictable knock-on effects. Prime Minister George Papandreou will announce cabinet changes today after failing to garner support for austerity measures. Australia’s dollar fell as Asian stocks declined, reducing demand for higher-yielding assets. Aid for Greece “is dependent on the Greek parliament passing the additional austerity package,” said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp., Australia’s second-largest lender. “That’s going to limit the potential for any bounce in the euro.” The euro depreciated to 113.96 yen as of 6:37 a.m. in London from 114.56 yen in New York yesterday, extending this week’s loss to 1.1 percent. The single currency dropped 0.5 percent to $1.4137, having slipped 1.5 percent this week. The U.S. currency was little changed at 80.62 yen from 80.63. German Chancellor Angela Merkel and French President Nicolas Sarkozy will meet today in Berlin to discuss a rescue package for Greece. EU finance ministers agreed on June 14 to convene again on June 19 after they failed to reconcile a German-led push for bondholders to shoulder part of the cost of a new plan for Greek aid. Greece ‘Haircut’ “A hard haircut would risk contagion for many European countries with unpredictable consequences,” Juncker said in an interview, according to the German newspaper Tagesspiegel. “It will be an extremely difficult process for the Greeks” to execute policies ensuring they pay back their debt, he said. Papandreou is struggling to gain parliamentary approval for a 78 billion-euro ($110.3 billion) five-year package of budget cuts and asset sales by July to ensure the country receives a new EU aid package to avoid the euro-area’s first default. Banque Nationale de Belgique SA Governor Luc Coene said he sees the crisis in the Greek government as the main stumbling block, according to remarks cited by De Standaard on its website. European officials are likely to agree on some assistance for Greece and an announcement over the weekend that a package is imminent will boost the euro in the short-term toward $1.45, said Thomas Harr, head of Asian foreign-exchange strategy at Standard Chartered Plc. ‘Contagion Risk’ “Our base view is that there will be some kind of agreement,” Singapore-based Harr said. Longer-term “the bias is clearly lower because it would only be a relief rally and it doesn’t change the fact that eventually Greece will have to default and there is still a lot of contagion risk to the likes of Portugal and Ireland.” The cost of protecting Greek bonds against default for five years climbed to a record 2,236 basis points on June 16, indicating traders expect Greece to fail to pay its debts. A Greek default is “almost certain” and could help drive the U.S. economy into recession, Former Federal Reserve Chairman Alan Greenspan said. “The problem you have is that it’s extremely unlikely the political system will work” in a way that solves Greece’s crisis, Greenspan said in an interview yesterday with Charlie Rose in New York. “The chances of Greece not defaulting are very small.” Australia’s dollar slipped for a third day against the greenback as a decline in Asian stocks reduced demand for higher-yielding assets. The MSCI Asia Pacific Index of shares fell 0.7 percent, reversing an earlier gain. “Reduced risk appetite is weighing on the Aussie,” said Kengo Suzuki, manager of the foreign bond department in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank. The so-called Aussie weakened 0.4 percent to $1.0516, and dropped 0.4 percent to 84.77 yen. To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net To contact the editor responsible for this story: Nicholas Reynolds at nreynolds2@bloomberg.net

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