European problems.

From FXPro.
Europe
The euro fell to a new four-year low against the dollar Tuesday as concern over euro-zone banks, euro-zone sovereign debtors and the future of Angela Merkel's coalition government took their toll. General market sentiment was also being undermined by weak Chinese data, fear that the Japanese prime minister could resign and the Israeli attack on aid ships headed for the Gaza Strip. Investors were reacting to all this global upheaval with another pull out of risky assets that sent both Asia and European stock markets sharply lower. The latest rot set in Friday when Fitch downgraded Spain's sovereign debt rating and triggered a new sell-off in the bonds of euro-zone debtors. The European Central Bank also became part of the problem as the bank's recent policy of buying government bonds proved divisive. Officials at Germany's central bank are questioning the policy, which could weaken the ECB's credibility. The ECB also issued a warning about euro-zone banks, predicting that they could face another EUR195 billion of bad-debt writedowns over the next 18 months. Fears about the impact this will have on balance sheets means that financing conditions for euro-zone banks could deteriorate even more, making economic recovery for the region that much more difficult. In the meantime, Germany's ruling coalition came one step closer to collapse after German President Horst Kohler resigned unexpectedly. This was more bad news for Chancellor Merkel, who is already facing difficulty with smaller parties in her ruling coalition over plans to hike taxes to help fund the country's budget deficit.