The euro briefly dropped below $1.27 this morning as Fitch Ratings has warned that Greece “still has lots of potential to plunge Europe into crisis” and that “time is running out” according to a report by the Associated Press cited at Business Insider.
The current critical issue is the refusal of the European Central Bank (ECB) to writedown any portion of its euro45 billion worth of Greek bonds. Without such a writedown, the haircut private investors would have to take would almost certainly exceed 50%. If that happens, most of the private bondholders are expected to refuse and file litigation to recover the full value of their investment.
Like a house of cards, if that happens the pressure on the euro becomes even more intense and could even threaten the currency itself.
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