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There are also mounting concerns that Germany, the eurozone's biggest country, will also have to undertake some cutbacks itself as it absorbs its share of the cost of the rescue deal. That will hardly get the thumbs-up from a skeptical public that last week inflicted a defeat on Chancellor Angela Merkel in an important regional election. "This highlights the longer term negative impact on the eurozone with severe fiscal tightening likely throughout the EU and not just in the periphery countries," said Ian Stannard, currency strategist at BNP Paribas. Meanwhile, it's become abundantly clear that the recovery from recession in the eurozone is proving to be slow
-- figures showed that the eurozone economy grew by a tepid 0.2 percent in the first quarter of the year from the previous quarter, compared with an equivalent rate of 0.8 percent in the U.S. Some near-term pickup is expected as global trade perks up and Europe's high-value exporters gain ground in the wake of the lower euro, which will help boost exports, all other things being equal. But the longer-term picture is less rosy as governments cut spending and raise taxes to relieve their debt problems
-- which will remove government stimulus from the economy and could undermine growth further. As a result, traders think it's more likely that the European Central Bank, which sets interest rates for the currency bloc, will be one of the last major central banks to start raising interest rates. That's a minus for the euro, since one of the main long-term drivers to currency rates is the interest rate holders get. If the U.S. Federal Reserve starts to raise interest rates, that makes it more attractive to hold dollars
-- rather than euros.
[Associated
Press;
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