More Problems On Way For Euro. By Nicholas Hastings

The euro will still slide, even without Greece.

The debt problems of Spain and Portugal still remain a threat to the currency's stability and the deteriorating outlook for the euro-zone economy will also take its toll.

French President Nicolas Sarkozy may well have provided euro bulls with just what they were looking for--an explicit reassurance that, come what may, the rest of the euro zone will run to the rescue of Greece.

This has helped financial markets to forget, at least for now, that the country faces another general strike on Thursday, that it still has another EUR20 billion of debt maturing in April and May, and that debt repayments continue rising until 2012 and don't really start declining until 2015.

In other words, the economic and political risks for Greece remain legion even if it has other euro-zone countries standing by its side.

A reminder of the problems facing other euro-zone debtors came Monday as Portugal's minority government unveiled the details of its deficit-slashing program.

The country's debt problems may not be as acute as those of Greece, but its economy is larger and the threat of strikes by its largest workers union means it too could face problems adopting the program it needs to keep on funding its deficit.

As Marshall Gittler, chief strategist with Deutsche Bank Private Wealth Management in Geneva, said: "Portugal's debt problems are nowhere as severe as Greece's, but it could be that investors decide to challenge the country anyway."

While austerity packages for Greece, Portugal and also probably Spain will provide the answer to the debt crisis that has been undermining the euro, they will bring other problems of their own for the single currency--slower growth in the euro zone as a whole.

Although some of the larger countries, such as Germany, have been showing more robust recovery from recession, this will likely be hit if demand for German exports from peripheral countries declines.

For the European Central Bank, this means one thing--interest rate hikes are off the agenda.

Despite continued hawkish suggestions from the bank that it will remain vigilant about inflation pressures, chances are that the euro zone's yield curve will steepen relative to the dollar's and make the single currency that much less attractive.

"While the U.S. economy still inches ahead and the Fed inches nearer to rate hikes, the euro-zone economy and the ECB seem stalled, perhaps even going backwards," said Steve Barrow, a senior currency strategist with Standard Bank in London.

Recent data on speculative positioning shows that euro shorts may have been scaled back from recent highs but that the large amount of euro shorts means there is still an upside risk for the currency against the dollar.

However, the sheer weight of fundamental arguments for remaining short of the single currency and the euro's own desultory performance despite Sarkozy's reassurances suggest that further losses are still likely.

Barrow's forecast that the euro will be down at $1.25 in the next few months looks far more likely to be attained rather than those more optimistic outlooks still looking for a euro rally back over $1.40 and beyond.

Overnight, the euro lost a little ground against the dollar and yen but rallied sharply against sterling, which is once again under intense selling pressure.

A report from ratings agency Moody's which suggested U.K. banks could suffer more downgrades, the latest opinion polls showing an increased risk of a hung parliament and a weaker-than-expected RICS price balance survey all added to pressure on the pound.

Around 0730 GMT, the euro was trading at $1.3606, down from $1.3630 in late U.S. trade Monday. The pound fetched $1.4985, down from $1.5063, while the dollar was worth Y89.93, down from Y90.26.