Eurozone finance ministers had a spring in their step Friday as they gathered in Cyprus for talks on the debt crisis as market pressure eases on the single currency.
Spain — whose debt threatens the whole currency union — saw its 10-year borrowing costs drop from a dangerously high 7.64 percent in July to around 5.5 percent following the European Central Bank’s announcement that it could buy unlimited Spanish bonds, should it apply for a bailout.
Spain’s finance minister, Luis De Guindos, gave little away when asked if he would ask for a bailout.
He said that in the next couple of days Spain will make important announcements. What Spain needs, he said, is to adjust its public deficit to the level they are committed to.
But there are plenty of pitfalls still ahead, said Simon Tilford, chief economist at the analyst group the Centre for European Reform.
The central bank is certainly doing all it can given the political constraints, he said. But it needs to be remembered that the bond purchases will be conditional on countries signing up to bailout programs, programs of structural adjustment, he added.
Another obstacle was overcome this week with the German constitutional court’s approval of the eurozone’s permanent bailout fund worth nearly $650 billion — the European Stability Mechanism.
The building blocks are starting to fall into place, Tilford said.