By Jack Duffy

PARIS (MNI) – Investors who are skeptical of the ability of
European leaders to deliver a solution to the debt crisis have rarely
been disappointed over the last three years.

Each succeeding summit has produced a new breakthrough, which has
been found by the markets, after weeks or even days, to be completely
hollow. But there are some good reasons to believe that the deal
produced by finance ministers this week could prove more durable.

The E130 billion bailout approved for Greece on Tuesday might
succeed because it is built upon, or alongside, a host of other measures
to address Eurozone weaknesses. The European Central Bank has eased the
risk of a credit crunch; banks have written down their exposure to
Greece and begun to raise capital; Italy and Spain have enacted
important economic reforms, and 25 EU states will soon join a fiscal
compact to ensure budget discipline in the future.

Greece has pledged to accomplish a long list of “prior actions” on
economic reform, submit to having a troika swat team permanently on its
soil and fund an escrow account that will prioritize payments to
bondholders. And a bond swap is underway that may erase E100 billion of
the country’s debt. The result is that while Greece may endure economic
pain for years to come, the immediate risk of a disorderly default and
an exit from the euro has been averted.

So is the crisis over? If the cause of Europe’s problems has always
been too much debt supported by too little economic growth, then the
answer would have to be that we still have a long way to go.

In Greece, first of all, the entire structure of the new bailout
rests on forecasts by the International Monetary Fund, which to be
polite about it, may prove faulty. The IMF forecast was that the Greek
would contract by 3.0% in 2011; it collapsed by nearly 7.0%.

In order for Greece to get to the 120.5% of GDP “debt
sustainability” level required by the bailout, its economy has to stop
shrinking next year and return to robust growth of 2.3% in 2014 and 2.9%
in 2015. If growth falls even modestly short of those projections, it is
back to the negotiating table for Athens.

German Finance Minister Wolfgang Schaeuble told reporters Friday
that the new three-year Greek bailout program came with no guarantees.
“That is why one cannot rule out with certainty that after this duration
and before 2020 there will be new demands,” he said.

In Spain and Portugal, deeper-than-expected recessions this year
will make reaching deficit and bailout targets tougher. The European
Commission forecast this week that Spain’s GDP will contract by 1.0%,
while Portugal’s economy will shrink by 3.3%.

Both countries are pressing Brussels to given them some breathing
space — Spain on its deficit target for 2012 and Portugal on the
conditions of its E78 billion bailout. How Brussels reacts to Spain and
Portugal could be key to whether the Eurozone crisis remains in its
current period of calm or whether tensions break out again.

Carsten Brzeski, a senior economist at ING Group in Brussels, said
that rather than ending the debt crisis, the second bailout program for
Greece “bought time for other peripheral countries to show that they are
different and to put all available anti-contagion firewalls into place.”

The Greek can has once again been kicked down the road, Brzeski
said. “Good thing is that the can is still on the road but it requires a
huge amount of stamina and patience to keep it there.”

**(EuroView is an occasional column written by Market News
International editorial staff. Any views expressed are solely those of
the writer)

–Paris newsroom, +33142715540; jduffy@marketnews.com

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