Eurozone to Focus on Structural Reforms

   on April 26 2013 8:26 AM

Rumblings that the euro may have found the light at the end of the tunnel kept the common currency trading steadily at $1.30 on Friday morning as eurozone officials optimistically concluded that no more major problems were foreseen in the near future.

Reuters reported that European Central Bank policymaker Yves Mersch said on Wednesday that the botched Cyprus bailout was the lowest he expected any country to fall. His comments reflect the bank's latest promises to slow down fiscal tightening now that the region has resolved immediate issues.

Since the ECB agreed to slow down the pace of budget tightening, many are expecting France and Spain to receive an additional time to reduce their budget deficits which has created a sense of calm within those countries.

The sense of calm within the eurozone is all relative, though. Although policy makers are no longer trying to put out fires, the region is still struggling to make structural reforms and implement a banking union to ensure tighter fiscal control.

The European Commissioner for Economic Affairs, Ollie Rehn, told reporters on Thursday that the region would need to stick to the planned structural reforms and underscored the importance of putting the banking union into place. Although the union was agreed to in 2012, German Finance Minister Wolfgang Schauble has been dragging his feet by claiming the union would require amendments to the EU treaty.

At the moment, things seem to be picking up for southern European countries, which have been wracked with political and economic uncertainty since the beginning of the crisis. Borrowing costs in Ireland, which were higher than eight percent before its bailout, have decreased to 3.8 percent and benchmark yields in Spain and Italy are also heading down.

Investor confidence seems to be returning to the region as banks in the south have begun to pull away from the ECB's funding and take steps to become self sufficient.

Though many eurozone policy makers claim the region has turned a corner, there are still several issues haunting the currency. At the forefront is the repercussions of the Cypriot bailout, which many fear could have a lasting negative effect on the region.

The ECB's suggestion of taking money from insured depositors, although rejected by the Cypriot parliament, has opened a can of worms and caused many to suspect that the proposal could be made in another country.

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