Tensions Run High in the Eurozone

 
on April 02 2013 8:07 AM

The euro traded steadily near $1.28 on Tuesday morning after a difficult first quarter wracked with financial and political problems.

At the moment, the biggest weight on the common currency's shoulders is Cyprus' bailout agreement, which ruffled investors' feathers with its unconventional fund raising scheme. In the agreement, Bank of Cyprus account holders will be forced to bear the brunt of the country's debt and are expected to lose around 60 percent of their savings.

The terms have caused tension in other struggling Southern European countries like Spain and Italy where this type of agreement could set a precedent for future banking restructures.

However, Cypriot banks opened after being closed for nearly two weeks without any major incidents, which calmed market fears. Moving forward, most aren't expecting the Cypriot bailout to bring down the entire region, although some are worried about capital flight in other countries.

The plan, firmly backed by northern European leaders like German Chancellor Angela Merkel, is adding to an already tense relationship between the powerhouse economy and its struggling peers. According to Reuters, Germany's austerity led policies are widely unpopular for the countries that are forced to enact them.

However, as the largest contributor to bailout funds and one of the only eurozone economies to weather the region's financial crisis, German lawmakers feel it is unfair to blindly lend money without having some say in the reforms.

With the European Central Bank's monthly meeting on Thursday, many are hoping to see a light at the end of the tunnel for the eurozone, whose problems in 2013 seem to lead anywhere but the much anticipated recovery.

Investors will be watching the press conference following the meeting for any clues about the bloc's finance ministers' plans for the next three quarters.

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