Cyprus is now focusing minds on the structural repair of the euro area, such as banking union.”Īlthough the renewed confidence is principally down to the European Central Bank’s promise to support the single currency whatever it takes, it has allowed Brussels to soften the orthodoxy of budget austerity - despite the misgivings of Germany. “Although we might be down here for a little while longer, due to risks of an aggravated euro-area credit crunch, there is light at the end of the tunnel. “With Cyprus, we have hit the lowest trough of the crisis,” said Peterson’s Jacob Kirkegaard of the Peterson Institute for International Economics, a think tank in Washington. While the existential threat may have passed, the need to implement tough and unpopular structural reforms remains, and plans for tighter oversight and control of banks via a ‘banking union’ are not even half-way there. Yet none of that means the bigger issues underpinning the crisis are resolved. ![]() The policy of austerity remains, but the pace of fiscal consolidation will ease. The relative calm has given officials in Brussels breathing space, and the signs are that several countries, including France and Spain, could be given an extra year or two to meet their budget deficit goals. It is a line of thinking shared by European Central Bank policymaker Yves Mersch, who said on Wednesday he did not expect another country to “slump further”. “There are no more major issues in the pipeline.” “All the skeletons are out of the closet,” said one senior official who has spent much of the past three years working on the crisis. Spain’s bank restructuring appears to be working. And although Malta’s banking system is vast compared with its economy, it is not structured in the same way as in Cyprus. ![]() Slovenia’s banks are a concern, but one that policymakers are confident they can deal with. REUTERS/Vincent Kessler/Fileĭespite a messy bailout of Cyprus, markets are calm, Ireland’s rescue programme is on track and Greece and Portugal, while still in recession, hope for a slow recovery next year. File picture shows European Union member states' flags flying in front of the building of the European Parliament in Strasbourg, April 21, 2004.
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