Euro Imperiled by Biggest Loan Drop Since ’09

Currency’s three-month rally runs up against a deepening credit crunch in Europe.

The euro’s three-month rally against all but one of its major peers is imperiled by a deepening credit crunch for European companies that adds to the risk of another recession as the region’s counterparts recover.

The currency has weakened 2.8 percent versus the dollar from a four-month high on Sept. 17 as small and medium-sized companies that Deutsche Bank AG says generate as much as 70 percent of the economy are starved of credit. Loans from European banks plunged in September by 0.8 percent from a year earlier. The last time lending contracted that much, in October 2009, the euro fell 5.8 percent in the following three months.

‘Hard Work’

Massimo Zappia, who started Fenster Group in Conegliano, northern Italy, after his previous employer went bankrupt, had to rescind signed contracts to supply 3,200 windows as 20 banks refused him loans to buy the raw materials and machinery needed to produce them.

Loan Squeeze

Italian utility Enel SpA issued 2 billion euros of bonds on Oct. 8, while Portugal Telecom SGPS SA sold 750 million euros of senior unsecured notes in its first benchmark-sized deal since February 2011.

U.S. Lending

The supply of credit in Europe’s weaker economies is forecast to decline 9 percent through the end of next year under the IMF’s baseline scenario, the report said.

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