Barroso Suggests that a Policy Shift is on the Eurozone's Horizon

on April 23 2013 8:17 AM

The euro traded steadily at $1.30 on Tuesday morning as investors waited for the Spain's latest budget plan, set to be released later this week.

The nation's Finance Minister Luis de Guindos said the plan for the next few years will be focused on economic growth rather than deficit reduction.

After bowing to pressure from the EU, Spanish government officials cut their budget deficit from nine percent to seven percent of GDP last year. However the tax increases and sharp spending cuts responsible for the reduction are cited as causes for the country's sky high 26 percent unemployment and continually worsening economy.

The Spanish budget could be the first of many policy shifts which reflect the eurozone's changing position on austerity centered economic recovery. Last week, the International Monetary Fund echoed calls from a number of non EU nations by asking the bloc to ease its budget tightening strategy and move away from austerity programs that were holding up the global economic recovery.

On Monday, European Commission President Jose Manuel Barroso confirmed that a policy shift was on the bloc's horizon when he made comments suggesting that the austerity minded approach was no longer effective. The Wall Street Journal reported that Barroso indicated that although he believes in the fundamentals behind such a policy, without public support it is ineffective.

While his intention isn't to abandon the bloc's overall goal of reducing budget deficits to a sustainable level, he said the region would ease up on the pace. The speech has sparked rumors that some eurozone countries may be given more time to meet EU guidelines which require members to keep their budget deficit below the three percent threshold.

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