Following years of setbacks and shortfalls, efforts to stabilize the euro currency union finally appear to be taking shape, with policymakers scoring two key victories in as many weeks.
"It's encouraging to see, but all these measures were necessary to preserve the status quo," said Marie Diron, senior economic adviser at Ernst & Young in London. "Without these things, the situation would have been quite dire, but we've learned to be cautious."
European Union officials also released a proposal for a centralized banking authority, though it will likely be years before a so-called banking union is in place. And in the Netherlands, pro-euro political parties came out ahead in this week's general election.
Altogether, that has lessened the risk of the euro currency union falling apart
"I see the trend as basically positive," C. Fred Bergsten, a former U.S. Treasury assistant secretary for international affairs, told reporters Thursday during a conference call organized by the Council on Foreign Relations. "The doomsayers have told us time and again that the apocalypse is at hand, but it has not happened."
Still, it remains to be seen if leaders can overcome their political differences and make the difficult decisions necessary to implement the plans, said former U.S. Treasury Secretary Robert Rubin, who co-chairs the CFR.
Past progress has been undermined by a lack of unity among eurozone leaders.
"I continue to think that they're behind curve," said Rubin. "This will not get resolved until the political leaders do what they need to do."
The latest policy moves will buy time, but they do not address the region's fundamental problems, such as a lack of economic competitiveness and weak growth in Spain and Italy, said Ben May, an economist at Capital Economics. In addition, the economic outlook has deteriorated significantly this year, with eurozone gross domestic product shrinking in the second quarter.
"These problems can't be solved with loans or by subsidizing government borrowing costs," May said.
In the weeks ahead, investors will focus on Spain, which stands to benefit from the ECB's bond buying program. But the ECB has made it clear that Spain must first commit to a program of budget reforms and outside surveillance by activating either the European Stability Mechanism or its predecessor, the European Financial Stability Facility.
Spanish Prime Minister Mariano Rajoy has so far resisted such a move, especially since the government's borrowing costs have plunged on hopes of an ECB intervention. The yield on Spain's 10-year bond dropped to a low of 5.6% this week, down from a high of 7.7% in July.
"These are hardly the market conditions in which one would expect Madrid to go cap-in-hand to the eurozone rescue facilities," said Nicholas Spiro, director of London-based consultancy Spiro Sovereign Strategy. "It's a perverse situation in many ways. Just when we finally have a half-way credible bond-buying plan in place to help shore up Spain and Italy, neither country wants to make use of it."
Italy has also seen its borrowing costs fall as investors see Spain as a threat to the stability of Italy's €1 trillion bond market.
Italian Prime Minster Mario Monti has suggested that Italy would not need to tap the rescue funds, although investors are concerned that steps to overhaul the nation's economy will falter after Monti steps down next year.
Greece, a perennial source of concern, is also on investors' minds.
The Greek government is in talks this week with officials from its 'troika' of international lenders, including the European Union and International Monetary Fund.
Greek Prime Minister Antonis Samaras is hoping to secure a two-year extension of the bailout agreement Greece's caretaker government signed in March.
But the troika has reportedly rejected some of the €11.5 billion of spending cuts the Greek government has to make in order to secure its next installment of bailout money. A top IMF official told the Wall Street Journal this week that Greece will need additional financing, which could involve more loans or a restructuring of Greek debt held by official institutions such as the ECB.
On the banking front, investors are eager to see how EU governments respond to the proposal for an EU-wide banking regulator.
The proposal, which centers on the ECB, has been in the works for several months, but there appears to be some disagreement over how much power it will have.
Germany, for example, wants the ECB to focus only on large "systemically important" banks, since overseeing all 6,000 banks in Europe would be unwieldy. But many of the problem banks are small or medium-sized institutions, such as the Landesbanken in Germany and Spain's so-called Cajas.
In addition, analysts say the United Kingdom may be reluctant to cede authority over its powerful domestic banks to the EU regulator.
"I think there will eventually be a compromise on these issues," said Diron. "But we're not there yet."
Billionaire financier and political activist George Soros said Germany should lead the European Union in a different direction, or be persuaded to leave the euro currency so other nations can move forward.
"In my judgment the best course of action is to persuade Germany to choose between becoming a more benevolent hegemon or leaving the euro," Soros wrote in an essay published in the New York Review of Books Monday. "In MOREBen Rooney - Sep 10, 2012 10:56 AM ET
The fate of Europe's latest rescue fund will be decided this week by a high court in Germany.
At issue is an injunction that would block the German parliament from ratifying the international treaty governing the European Stability Mechanism, or ESM.
The ESM is a key component of the "breakthrough" agreement announced in June by euro area leaders, including German Chancellor Angela Merkel, that is aimed at stabilizing financial markets and strengthening MOREBen Rooney - Sep 10, 2012 7:46 AM ET
Ben Rooney - Aug 27, 2012 11:48 AM ET
The eurozone economy continues to limp toward another recession as business activity stagnates, according to data released Thursday.
A key manufacturing index showed activity across the eurozone contracting for the seventh straight month in August. The Markit composite Purchasing Managers Index was virtually unchanged from July at 46.6. Any reading below 50 signals contraction.
Output declined in both the manufacturing and services sectors. And incoming new business orders fell for the 13th MOREBen Rooney - Aug 23, 2012 11:04 AM ET
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any individual stocks.
Investors seemed relieved by the latest GDP figures out of Europe Tuesday. But why?
Sure, I guess the numbers could have been a lot worse. But the eurozone's overall economy shrunk by 0.2% from the first quarter to MOREPaul R. La Monica - Aug 14, 2012 2:00 PM ET
One day after Moody's lowered its outlook for Germany's credit rating, the nation sold 2.32 billion euros worth of ultra long-term bonds.
The average yield at Wednesday's auction of 30-year bunds was 2.17%, down from 2.41% at the last such auction in April. The drop in yield, which falls when prices rise, suggests that demand remains strong. However, the amount sold was below the 3 billion euros offered by the German MOREBen Rooney - Jul 25, 2012 11:41 AM ET
Good news from Europe! The euro surged Friday morning on news of a deal to help recapitalize banks. Bond yields in Spain and Italy fell. Stocks around the world rallied and there was a nice pop on Wall Street as well.
Bad news from Europe! The euro surged Friday morning on news of a deal to help recapitalize banks. Bond yields in Spain and Italy fell. Stocks around the world rallied MOREPaul R. La Monica - Jun 29, 2012 11:28 AM ET
It's not eurobonds, but the leaders of France and Germany do agree on one thing.
French President Franςois Hollande and German Chancellor Angela Merkel both talked up the so-called growth pact that European Union leaders are expected to discuss Thursday in the first session of their latest summit.
Speaking to reporters outside EU headquarters in Brussels, Merkel said the pact on growth and employment is "a good program" that will, among other MOREBen Rooney - Jun 28, 2012 11:04 AM ET
As European leaders gear up for a two-day summit in Brussels, German Chancellor Angela Merkel made her anti-eurobond stance crystal clear.
"To force one single interest rate by means of eurobonds politically, which already have not worked on the markets, would be repeating of an old mistake and not the lesson learnt from experience," said Merkel, speaking in front of Germany's Lower House of Parliament Wednesday.
The idea of eurobonds, which would MORECatherine Tymkiw - Jun 27, 2012 10:30 AM ET
|Elon Musk says Mark Zuckerberg's understanding of AI is 'limited'|
|Why riding a bike to school is often illegal|
|Do you need $1 million to retire? Maybe|
|Microsoft Paint will be available for free on the Windows Store|
|McDonald's comeback kicks into high gear thanks to new sandwiches|