Forex News – Euro falls ahead of EU Summit

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Market sentiment is risk-off on Monday as the focus is on the EU Summit in Brussels later today where European leaders are expected to finalize agreements on the new statute of the European bailout fund called the European Stability Mechanism (ESM) that would be set up later this year. The ESM is to replace the current European Financial Stability Facility (EFSF) and is made up of 500 billion-euros.

The first EU Summit of 2012 is being held just as Greece is negotiating the terms of the Greek debt write down with private creditors, which is crucial for the Greek government to receive its second tranche of bailout funds from the IMF and EU. An agreement on the amount of the “haircut” is due soon as bondholders signaled they would accept European government demands for a bigger cut in their debt holdings.

Meanwhile, the EU leaders in Brussels today will be discussing the terms of the second bailout which Greece requires in order to be able to meet a 14.4 billion euro bond redemption maturing in March 20. Back in October at the last EU Summit, European leaders and the IMF agreed to provide Greece with 130 billion euros in fresh financing to cover the country’s cash needs through 2015 in order to prevent Greece from defaulting.