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Immediate fears of default have been averted by the European Union and International Monetary Fund's euro750 billion ($900 billion) package of cash and state loan guarantees to protect debt-laden countries in the 16-nation eurozone from bankruptcy. However, the impact of painful austerity measures on growth in future years has hurt the euro and raised worries of a double-dip recession. Europe's leaders say the euro rescue package must be backed up with drastic austerity measures to get debt under control
-- and shore up credibility in the fundamental rules that govern their 11-year-old currency. Trichet has said Europe needs "the equivalent of a budgetary federation" as a watchdog over eurozone governments' public finances. Also weighing on the euro have been predictions that the bank will wait well into 2011 before raising its key interest rate from the current record low of 1 percent. Those low rates can weigh on the euro's exchange rate by reducing return on euro-denominated investments
-- especially if rates go up first in the United States as its economy recovers.
[Associated
Press]
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