Europe is back from the precipice, but the danger is far from over. The European financial crisis continues its unwelcome progression, and, unfortunately, the long-term prognosis has not improved. The recent summit of European Union leaders looked a bit more constructive and more promising, but the issues in Greece, Spain and Italy are nowhere close to being resolved.
The bad news is that the amount of money necessary to keep those struggling countries afloat is far more than most people anticipated, even a few months ago. The good news is that European leaders seem to have finally recognized and accepted the depth of the problem, and appear to be more willing to make tough, but necessary decisions. The big question is whether or not it is too late to do anything about it. On that score, the outlook still appears grim.
The day of reckoning has been temporarily delayed by Germany agreeing to allow Eurozone bailout funds to be given directly to Spanish banks (a move which means that the government of Spain will not have to count those obligations against their government debt burden). Ultimately though, I believe they are just postponing the inevitable. Many of these countries are headed for recession, and the next few years will not be pretty. Germany can’t hold up the rest of the continent indefinitely, and the math just doesn’t add up for a large-scale European recovery any time soon. What that means for us in the U.S. remains to be seen, but there is still plenty of reason to be nervous—and to carefully monitor the evolving European crisis.