BRUSSELS: The euro zone is out of the emergency ward, but it may face a chronic debilitating illness rather than a rapid convalescence.
The challenges confronting Europe now are to avoid complacency, rekindle economic growth while cutting debt and prevent national politics pulling the currency area apart.
Last week's European Union summit was the first in two years that was not total dominated by fire-fighting in the currency bloc's sovereign debt crisis. The relief was audible.
"This was not and that is an innovation a meeting focused on crisis management," European Commission President Jose Manuel Barroso said. "It was a meeting focused on growth."
Three events have changed the mood and calmed financial markets that appeared late last year to be betting on a breakup of Europe's 13-year-old single currency.
European leaders have signed a German-driven fiscal compact treaty giving sharper teeth to their oft disregarded budget discipline rules, and key states such as Italy and Spain are implementing tough spending cuts and pension and labour reforms.
Greece has averted a catastrophic default, at least for now, securing a second international bailout and a deal with private creditors to reduce its debt mountain to more manageable levels.
Above all, two massive injections of cheap, long-term funds by the European Central Bank have prevented an incipient credit crunch that could have triggered bank collapses, bank runs or a bond market inferno forcing Italy or Spain to the wall.
ECB President Mario Draghi is the hero of the hour for finding a way to act as a lender of last resort to banks without breaching an EU treaty prohibition on financing governments directly.
"It's not 100 percent guaranteed, but I think we are coming out of this crisis," said French President Nicolas Sarkozy, eager to give voters in next month's presidential election the impression that the worst is behind them.
Such self-congratulation prompted Draghi to warn EU leaders behind closed doors that the crisis was far from over and that the ECB had now done its bit.
Participants quoted him as saying the bank's action had only bought them some time to repair public finances, make credible reforms and revive growth. If Europe did not use the respite to reform, there would be very bad consequences.
Comments
Comments are closed for this article.