Eurozone Banking Union Back In Focus

After a week of solid data, the eurozone banking union is coming back into focus as an end to the longest ever recession comes into view. The common currency has been strong above $1.33 as the region's economic indicators point to a modest recovery.

Recent industrial output data showed that Germany was making a solid comeback following a harsh winter. According to Reuters, analysts are expecting to see about 0.7 percent growth in the second quarter and growth rates between 0.3 percent and 0.4 percent for the remainder of the year.

The improvement in Germany could help prop up the eurozone's 2nd quarter GDP, as it did during the first few years of the region's financial crisis. Preliminary 2nd quarter GDP data for both Germany and the eurozone as a whole is due out on August 14th.

Although Germany seems to be making a comeback, many worry that the success will be short lived if the nation continues to rely on exports as its eurozone trading partners are still heavily immersed in the region's financial crisis.

Greek Finance Minister Yannis Stournaras spoke out on Friday saying Greece would not be able to return to the bond markets until it had achieved a primary budget surplus and had returned to growth. Stournaras acknowledged Greece's responsibility to carry out reforms and balance the nation's budget, but also pointed out that the eurozone as a whole was facing several core problems, namely the lack of a unified banking structure.

These concerns were echoed in Italy where banks are attempting to clean up their balance sheets in preparation for an asset quality test expected in early 2014. As it stands, the European Central Bank is set to take over supervision of eurozone banks in mid 2014, but before doing so, the region's banks will undergo strict testing to assess the health of their balance sheets.

In Italy, this is creating a bit of a problem as the nation's banks will likely find themselves in need of billions of dollars. As banks work to clean up bad loans, they may be forced to turn to investors or the state in order to fulfill their financing needs.

BY Laura Brodbeck