It's not over until the fat lady sings

Felipe Senisterra

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The Silhouette

A summer of love may remain out of the Eurozone’s reach these next few months.

After completing the first phase of a bond swap that will reduce Greece’s debt payments by more than €95 billion, the tightrope walk of Greece, private investors, the European Central Bank and other Eurozone policymakers was eased somewhat, and the matching of this with the approval of a second bailout  of €130 billion gave markets and speculators much to be optimistic about.

However, as global headlines praise the past several weeks of achievements in the Eurozone and announce a newfound light at the end of the tunnel, cautious excitement will still fare better than outright joy. While the threat of a full-fledged default by Greece once posed a major threat to the global economy, the region still faces threats from more than one corner which can still have worldwide implications.

While Portugal and Ireland have taken steps to move into better financial standing by way of austerity measures, such strategies have constrained consumer activity and business development in many sectors of their economies, as well as create turmoil with labour strikes.

Both countries are expected to once again be able to raise money in capital markets by the end of the year, but the wringer Greek creditors have been put through will make it incredibly difficult for these two countries to issue debt at favourable rates. The next few months will surely tell if these two challenges be met appropriately.

Positive signs in Greece, as well as Portugal and Ireland, of late, are also still balanced by activity in Italy. There, a recently elected Mario Monti struggles to convince unions and other politicians to accept his proposed economic reform. Elsewhere in Spain, the economy is now in its second recession since 2009. Both countries will have their work cut out for them in the coming months, as they seek to prove to voters, neighboring countries and global markets that they are on the gradual road to recovery - or, at the very least, have a map.

Looking forward, what remains to be seen is whether fiscal accounts in such countries can be improved despite economic contraction and increases in unemployment, as well as whether the financial volatility can be cushioned enough to boost consumer and business confidence.

Policymakers will continue to be on thin ice in the coming months, as the benefits of recent achievements remain fragile, and economies still have much work to do. In Greece, major portions of support funds that have been granted will need to be committed to the support of growth and the re-capitalization of banks who suffered major losses in the debt swap, especially before government dissolves to prepare for an election in mid-spring.

However, the time leading up to such an election, as is usually the case, can easily be wasted with political gridlock and make reform and austerity measures very difficult. Productive political action in this matter, as well as with regards to the preparations for the second bailout, will be crucial.

Elsewhere, the rest of the PIIGS nations must continue working to regain both stability and the confidence of the Eurozone and global economies. Portugal, with €23 billion of its debt maturing this summer, is likely geared towards expensive refinancing, meaning ensuing viagra cheap additional austerity measures will demand even more precision from its policymakers. And Ireland, Italy and Spain must continue striving to meet GDP deficit targets set by Eurozone finance ministers, as daunting (and, sometimes, unrealistic) as those targets may be, in order to promote stability in the region and in global markets.

The Eurozone – and those elsewhere who are heavily exposed to its financial struggles – are not completely out of the woods yet. Analysts at TD Economics still project Portugal, Italy, Ireland, Greece and Spain to experience economic contraction this year, and it is reasonable to expect policy reforms and fiscal changes to be a recurrent theme in the entire Eurozone over the next few years.

While the risk of a widespread crisis amid the possibility of an outright default in Greece has been contained for the time being, the Eurozone still has much to prove in terms of how it will contribute to global growth in the coming years. Some positive momentum has been established recently, but it can just as easily swing upwards as downwards this summer. The narrative in the Eurozone has become somewhat more upbeat lately, but hopefully the future there will be an even more optimistic story to tell.