The Euro touched on a new 12-month low, after Standard & Poor downgraded Spain’s credit rating from AA+ to AA and said the outlook on the country’s debt is negative. The single European currency traded at as low as $1.51240, on the forex market, as concern that Europe’s deficit crisis may widen damped the appeal of assets in the 16-nation region. The S&P’s latest stab at the European continent, in addition to early downgrades this week to Portugal and Greece, exasperated fears that the Euro Zones debt crisis is spreading.

Between Germany insisting that Greece agree to “terms” before handing over their share of the bailout fund, and the IMF now reporting that the Greece’s bailout package could total to €120billion ($150 billion) over three years – nearly three times the amount previously pledge- its seems as if Europe has been sucked up in into a black hole of utter disaster.

While the Euro became a rival to the US dollar after the common currency’s inception in 1999, the debt crisis that began in Greece, a country that accounts for less than 3% of the nations GDP, shows just how easy it is to shake the common currency. The euro’s 11% decline in the past six months (on the forex market) made it the worst performer among its 16 most-traded peers.

According to Sudeep Singh, a hedge fund manager who has treaded in emerging markets for 17 years, European nations are constrained by the Euro because they can’t reduce the costs of their goods and services with a cheaper currency. The credit ratings of Spain and Portugal were cut this week amid concern Greece’s difficulty to pay its debt will spill over to Spanish and Portuguese markets.

An alternative is needed to let Greece and other European nations devalue their way to financial health. According to Mr. Singh, Europe needs to split its currency into two classes to provide an alternative for struggling nations such as Greece and Portugal. He proposes calling the new currency the “sestertii” after the Roman Empire coin once used across southern Europe.

“In every other emerging-market crisis there’s been a currency devaluation, a debt restructuring and tighter new fiscal policy. Greece and the others can’t become competitive without a cheaper currency.” Sigh said “There are differences, and screaming differences, that have now been shown between the regions of the euro-zone,” he said.

The European Central bank has already said that expulsion of Greece from the Euro –Zone is legally impossible – replacing the European common currency that’s been in place since 1999 is getting less far-fetched, Singh said.

With a higher debt burden and a slower 10-year growth rate than Greece, Western Europe’s poorest country is being punished by investors as the sovereign debt crisis spreads. The risk premium on Portuguese bonds rose to more than double the past year’s average this month alone. With Portugal’s credit default swaps showing investors rank its debt as the world’s eighth-riskiest, worse than for Lebanon and Guatemala, one has to wonder is Portugal about to perform its own version of a Greek tragedy? Is Portugal at risk of becoming the “New” Greece?

Yesterday the Euro slipped against all its major currency counterparts, in the forex market, as uncertainty intensified over how and when Greece would get the financial aid sought last week to avert a potential sovereign debt default. The spread between Greek and German 10-year government bond yields hit a new 12-year high of 679 basis points on Monday, indicating market concern over the implementation of the aid package and the conditions attached to it. Portuguese spreads, the extra yield that investors demand to hold its debt rather than German equivalents, followed in Greece’s footsteps jumping to 218 basis points, the most since at least 1997.

While Portuguese Prime Minister Jose Socrates tried to convince investors that his country will avoid Greece’s tragic fate, his attempts were thwarted by an economy that’s expanded less than an annual average of 1% for a decade and its economy is completely dependent on tourism and industries such as cork and pulp.

According to Kenneth Wattret, chief euro region economist at BNP Paribas SA in London, “The reason we’re concerned about Portugal is not because its public sector debt ratios are excessively high, it’s more that the Portuguese economy doesn’t really grow.” Moreover, the EU’s difficulty in containing the Greek crisis is strengthening the threat of “contagion”, just as the near-collapse of Bear Stearns Cos. in 2008 undermined other U.S. banks, exacerbating the credit crisis.

Despite the fact that Portugal’s public debt of 77% of gross domestic product is on a par with that of France, the burden including corporate and household debt exceeds that of Greece and Italy, at 236% of GDP. Moreover, the savings rate is the fourth-lowest among 27 members of the Organization of Economic Cooperation and Development, according to the Paris-based group’s data.

The real risk for Portugal is that investors who are trying to protect their portfolios from a Greek-like rout will immediately begin dumping holdings of small euro countries, such as Portugal. Once that happens, surging bond yields could drag Portugal into the same downwards spiral that the Greece is so desperately trying to escape.

The interest rate is 6.14 percentage points higher than Germany’s rate – Germany is seen as the safest investment in Europe. It is the largest spread in bond yields for 12 years. The increase indicates that investors are still nervous over plans to rescue the Greek economy in spite of progress on bailout talks over the weekend.

After Friday’s rally on the forex market the euro has fallen during todays trading. Against the US dollar the currency has dropped 0.21% on the day’s opening to EUR 1.33243 and it has fallen 0.76% against sterling to 0.86189 pence to the euro.

Greece’s debt, which totals 115% of GDP as well as a budget deficit of almost 14%, has forced the country to request 40 billion euro’s of aid from the European Union and the International Monetary Fund. Yesterday Greek Finance Minister George Papaconstantinou said talks with the IMF over the weekend went well and the IMF head, Dominique Strauss-Kahn, said a deal would be agreed “in time to meet Greece’s needs”.

Greece has 8.5 billion euro’s worth of bonds maturing on the 19th of May that it must repay. The EU is expected to provide 30 billion euro’s worth of aid this year with a further 10 billion euro’s to come from the IMF. However the scale of the assistance that Greece will require after this year remains unclear.

The backing of Germany, Europe’s biggest economy, is vital for any aid but Berlin faces public opposition to a financial rescue and is taking a tough line over the terms. “The government has not taken a decision (on aid),” German Foreign Minister Guido Westerwelle told reporters at a meeting of EU ministers in Luxembourg. “That means that the decision can fall in either direction. Offering money too soon would get in the way of Greece doing its homework with the requisite diligence and discipline.”

Despite German pressure on Athens, markets have kept pressure on Berlin by pushing up the cost of insuring Portuguese government debt to a record high amid fears that Portugal could be the next EU member state to face a debt crisis.

“The Greek crisis has started to spread to the rest of the periphery and Portugal seems to be next in line. The situation there is less urgent than in Greece, but the medium-term outlook is challenging,” one senior economist said. “Unless Europe’s leaders can draw a line under the situation, Portugal could face an uncomfortable period.”

But Greece’s problems have continued to hit investor confidence in the euro and other European economies.

On Thursday Eurostat released figures which revised the Greek budget deficit up from 12.7% of GDP to 13.6% of GDP. The agency also said doubts over the figures meant they could be revised again. At the same time Greece’s benchmark 10-year bond yield soared to a record high of almost 9%.

On Friday morning Greece called for activation of the financial lifeline. The appeal for help from the EU and IMF came after the surge in borrowing costs to what Greek Prime Minister George Papandreou called “unsustainable levels”. Following Prime Minister Papandreou’s request for assistance the interest rate fell to 7.99% before creeping back up to 8.66%.

The fall is a sign of a slight increase in confidence in Greece’s ability to pay back its loans. But analysts said there was still significant uncertainty ahead. “The market’s relatively modest reaction to the news that Greece was formally requesting aid from the EU and IMF was a clear sign that the market still believes that Greece will be forced to restructure its debt even with a bail-out,” one analyst said.

The euro rallied in late in Friday’s forex trading, ending in New York 0.87% higher against the US dollar at $1.33837.

Meanwhile, politicians from Greece’s fellow euro zone members, France and Germany, have warned Greece it must be far more prudent in future. The French economy minister, Christine Lagarde said that the EU would come down hard on Greece if it failed to act responsibly: “In the case of default on repayment, we will immediately put the foot on the brake.”

Germany’s finance minister, Wolfgang Schaeuble, also said aid should not be taken for granted, but was conditional on prudent behavior. He said any loan depended “entirely on whether Greece continues in the coming years with the strict savings course it has launched”.

But Mr. Schaeuble also stressed the importance of currency union to his country. He said: “We are defending the stability of the euro, because Germany benefits (from the currency) at least as much as all the others. Help for Greece is therefore not a waste of taxpayer money, but a move based on fundamental German interests.”

The Greek government has already taken austerity measures, including cutting government workers’ pay, freezing pensions and raising taxes. The cuts have proved unpopular, prompting strikes and demonstrations such as a march through Athens on Friday in which several thousand protesters took to the streets.

The pound gained 0.1% to $1.5373 in early trading on the forex market today. It appreciated 0.2% to GBP 0.8734 against the euro and was 0.1% stronger at 143.33 yen.

Office for National Statistics figures are expected to show claimant count unemployment fell again in March by around 10,000. That would build on a drop in dole queues the previous month that at 32,300 was the sharpest reduction since the early days of Labor’s tenure in November 1997.

The jobless rate for February is expected to hold steady from January at 7.8% while the latest average earnings growth is expected to have picked up to 2.5% over a three-month period on a year ago from a rate of 0.9% the month before as more bonuses lifted the most recent number.

Evidence of an improving labor market would assist Prime Minister Gordon Brown as his ruling Labor party fights an opinion poll advance by the opposition Liberal Democrats. Data on jobs, the budget deficit and GDP this week will provide the final glimpse at the economy before the May 6th general election.

Gordon Brown is seeking to capitalize on the recovery after his term in office coincided with six quarters of recession. When Labor came to power under Tony Blair in 1997, the country had been out of recession for more than five years and unemployment was at 7.2%.

The number of people claiming the dole peaked at 1.63 million after the recent recession – around 1.4 million less than the 1980s and 1990s recessions. The number of claimants has been falling since the end of the downturn this time whereas in the 1980s it continued to rise for more than five years after the recession ended in April 1981 – peaking at over 3 million in June 1986.

An ICM Ltd poll published on the Guardian newspaper’s website on Monday showed support for the Conservatives down 4 points to 33%, and Labor down 3 points with 28%, while support for the Liberal Democrats surged 10 points to 30%.

The US Dollar dropped to the lowest level against the Yen in almost a month on Friday as Goldman Sachs was sued by the Securities and Exchange Commission for fraud related to collateralized debt obligations that contributed to the worst financial crisis since the Great Depression. In a statement Goldman Sachs said the charges “are completely unfounded.”

Japan’s currency appreciated 0.95% to 92.156 against the US Dollar on Friday.

The Euro fell for two straight days versus the Yen before talks on Greece involving the European Union, the International Monetary Fund and the European Central Bank which are scheduled to begin in Athens tomorrow. European finance ministers have offered as much as 30 billion Euros ($41 billion) in three-year loans at about 5% interest, compared with the three-year Greek bond yield of 7.21%. Another 15 billion Euros worth of aid is to come from the IMF.

On Friday the Yen gained 1.4% to 124.44 per Euro after advancing 0.91% against the single currency the previous day.

Canada’s Dollar fell against the greenback for the first time in three weeks after touching parity for a second straight week, ahead of the Bank of Canada’s next policy meeting. The Bank of Canada will meet on April 20th to decide on interest rates. Governor Mark Carney signaled last month he’s open to raising the target lending rate as soon as June 1 as inflation and growth outpace forecasts.

New Zealand’s Dollar slid 2.1% to 65.31 Yen this week and Australia’s currency lost 2% to 85.18 Yen on speculation investors will reduce carry trades, in which they buy higher-yielding assets with amounts borrowed in nations with low interest rates. Japan’s benchmark interest rate of 0.1% has made the Yen a popular for carry trades.

Twelve-month non-deliverable Yuan forwards finished the week at 6.6185 per US Dollar, indicating traders now believe China’s currency may gain as much as 3% over the next 12 months. China has kept the Yuan pegged at about 6.83 against the US Dollar since July 2008. The currency had been allowed to rise 21% in the previous three years.

The Beijing statistics bureau said this week that the nation’s economy grew 11.9% from a year earlier, the biggest gain since the second quarter of 2007. China’s cabinet raised minimum mortgage rates and down- payment ratios for some home purchases, saying “more forceful” steps are needed to cool speculation after property prices rose at a record pace in March.

Singapore’s Dollar rallied the most against the greenback in six months, appreciating 1% to S$1.3756 as its central bank unexpectedly revalued its currency after the government raised forecasts for economic growth and inflation. The Monetary Authority said it will seek a “modest and gradual appreciation” in the local Dollar and shift to a stronger range for currency fluctuations, the first such combined move in its 39-year history.

South Africa’s rand was the biggest loser versus the US Dollar, declining 1.8% to ZAR7.390 on speculation the nation’s central bank will lower its target lending rate, now at 6.5%. The nation’s retail sales unexpectedly contracted for a 13th month in February, a report showed this week.

The difference in interest between Greek 10-year bonds and their euro zone German benchmarks jumped from 406 to 426 basis points, close to the eleven week high reached before Greece’s aid package was announced last weekend.

European finance ministers said on Sunday that the EU will provide Greece with 30 billion Euros of three-year loans at an interest rate of about 5%. The International Monetary Fund would provide a further 15 billion Euros. The agreement came after earlier pledges failed to convince investors that the government will able to narrow a 12.9% of GDP budget deficit that is more than four times the EU’s limit.

Uncertainty remains as to how exactly the aid will be disbursed should Greece formally approach the EU for assistance. The governments of Germany, France and Ireland will all have to vote on whether to contribute their share of the loans while the Dutch government is expected meet to discuss the question today.

Polls in Germany, which is expected to contribute approximately 8.4 billion Euros, have show the German public is overwhelmingly against a financial bailout for Greece and Chancellor Angela Merkel could lose the majority in parliament if defeated in an election scheduled for May 9th.

Pacific Fund Management Co., which owns the world’s largest bond fund, has said that it is not ready to buy Greek bonds. Blackrock Inc., the world’s biggest assets manager, said donor countries need to show they can withstand a backlash from their citizens.

But EU Economic and Monetary Affairs Commissioner Olli Rehn said he was confident that Germany would step in if needed. “I have no reason to doubt the German commitment if needed and if aid were to be requested,” Rhen said. He also dismissed fears of some investors over Greece’s long term solvency sating “There will be no default.”

Prime Minister George Papandreou needs to raise 11.6 billion Euros by the end of May to cover maturing debt, with another 20 billion Euros required by year-end to pay interest and finance this year’s deficit. The government sold 1.56 billion Euros of bills on April 13th, paying a yield of 4.85% on the one-year securities, up from 2.2% at a January auction.

However Greece did have to agree to pay a higher rate of interest to investors than in previous bond issues as doubts remain that the country will be able to extricate itself from the debt crisis that has shaken the Euro. The yield on 12-month bonds was 4.85%, and on 6-month notes it was 4.55%. This compares with a yield of 2.2% paid on 12-month bills and 1.38% on 6-month bonds from an earlier issue in January.

Following a brief rally on the forex market, the Euro  fell to a session low against the US Dollar of USD1.3598, from a near one-month high of USD1.3691 on Monday.

It is thought that Pacific Investment Management (Pimco), the world’s biggest investor in bonds, may have shunned the issue. Mohamed El-Erian, Pimco’s chief executive, said yesterday that the Euro Zone’s rescue package did not address Greece’s fundamental crisis.

“Based on what we know right now, we would not be a buyer [of the Greek bonds]. We are very cautious toward Greece and we are in a ‘wait and see’ attitude and we would like to see greater evidence of adjustment on Greece,” he said.

That was followed today by a recommendation by ABN Amro’s private bank to avoid Greek bonds because it was still unclear whether Athens could carry out its promised reforms. “We are far from done on the fiscal adjustment in Greece,” the bank’s chief investment officer Didier Duret said.

Prime Minister George Papandreou needs to raise 11.6 billion Euros by the end of May to cover maturing debt, with another 20 billion Euros required by the years-end to pay interest and finance this year’s deficit. Last week the government estimated its 2009 budget shortfall would be 12.9% of GDP, the biggest in the Euro’s history and more than four times the EU’s 3% limit. The previous forecast had been 12.7%.

Some analysts believe the latest bond issue went smoothly because the treasury bills have short maturities. However, Greece will soon have to raise another 10bn Euros via longer-term bills, which will test investors’ appetite for locking in their money for a longer period.

According to Greek official, the government will decide within a few days whether to ask for the aid, depending on whether market interest rates subside. Having placed the bailout offer “on the table”, may be enough to shore up confidence for the Euro and Greek bonds- however, in the end whether or not Greece will need to take the aid package and use it remains and entirely different question. In the end it is most unlikely that Greece or any of the other troubled Euro Zone countries will default. And so, with the Greece’s Tragedy potentially playing out its final scene, investors can finally turn the page and move onto the next chapter of the Euro Zone – the question is what will that be?

Once the dust begins to settle that, investors will turn their attention to Europe as a whole. The Markit, which compiles the Purchasing Managers’ Index, reported that the Euro Zone grew in March for the eighth consecutive month at the fastest rate since August of 2007- with Germany, France, Italy, and even Spain recording growth. Sounds promising so far right? But, what about the other 11 Euro Zone countries? Moreover, not all reports point in the same direction. The Economist Intelligence Unit predicts that growth in Western Europe will not even reach 2.0% until 2014- that is less than half the rate at which the report expects the rest of the world to be growing at that time.

Currently Germany, the Euro-Zone’s leading economy, is in far better shape than it has been largely due to a rapid increase in export. Unfortunately, current the domestic demand is far too small, and therefore, Germany will be unable to become that engine that is needed to push the EU to grow at the same rate as the U.S. The only chance Germany even has at increasing its exports will result from the devaluation of the Euro – as a lower Euro will make Germany goods more competitive outside the Euro Zone. That aside, following a 5% economic contraction on 2009, the German government is now predicting a growth rate of only 1.4% this year. While the prospect of the some near term growth in both Germany and the rest of the single currency zone is a considerable improvement over the all around contraction in 2009, it is the long term that is most worrisome to investors.

Last week, the ECB opted to hold the benchmark interest rate steady at its record low level of 1%; however, at some point, the central bank will have to begin to withdraw what Mr. Trichet refers to as its “significant economic stimulus.” If it moves too soon, even this modest forecasted growth could prove to be unattainable.

More importantly, in the long term the Euro-Zone economies will continue to remain at the end of the growth pact, if they refuse tp endorse the labor-market reforms that they have for so long promised and for so long avoided, making it easier to start new businesses by rolling back regulations, and ease the tax burden on wealth creators by trimming their welfare states. Almost all of Europe’s policy makers concede this to be the case, but so far all these economic reforms remain on paper.

So as the current draws on the current the Greek financial tragedy, a new current opens, and new a series of financial and economic problems are about to take the stage.

This was in spite of the fact that leading ratings agency Fitch downgraded Greece’s credit rating earlier on Friday.

Last month the EU and the International Monetary Fund announced plans to provide Greece with a 22bn Euro safety net that could be drawn on should the country find itself unable to raise funds it needs to pay off its debts. But this did little to calm market nerves as very few details of how the plan would work were revealed.

There were even concerns that disagreements between Euro Zone leaders about exact details of how the plan would work would not be resolved. As a result, the cost of borrowing on the financial markets for the Greek government kept on rising, reaching record levels on Thursday.

Reports now suggest that EU leaders have agreed a rate at which to lend money to Greece. This means it will not have to rely on raising funds in the financial markets. The rate will be lower than the market rate, making it cheaper for Greece to borrow money.

Although Greece still maintains it does not plan to turn to its Euro Zone partners and the IMF for any loans, investors now believe it will have little choice. Greek Finance Minister George Papaconstantinou said April 9th that Greece isn’t seeking EU aid and would meet its goal of cutting the deficit from about 13% last year, more than 4 times the EU limit, to 8.7% this year.

Fitch downgraded Greece’s credit rating by two notches, from BBB+ to BBB-. A rating of BBB- is significant as this is the lowest rating that qualifies as an investment grade bond. The downgrade put pressure on Greece to resolve its debt crisis quickly and came as leading investors called for Greece to seek financial help.

Greece needs to raise 11.6 billion Euros to cover debt that is maturing before the end of May and plans to sell bonds to U.S. investors in the coming weeks. The country’s debt agency plans to offer 1.2 billion Euros of six-month and one-year notes tomorrow.