Eurozone finance ministers had a spring in their step Friday as they gathered in Cyprus for talks on the debt crisis as market pressure eases on the single currency.
Spain - whose debt threatens the whole currency union - saw its 10-year borrowing costs drop from a dangerously high 7.64 percent in July to around 5.5 percent following the European Central Bank’s announcement that it could buy unlimited Spanish bonds, should it apply for a bailout.
Spain’s finance minister Luis De Guindos gave little away when asked if he would ask for a bailout.
He said that in the next couple of days Spain will make important announcements. What Spain needs, he said, is to adjust its public deficit to the level they are committed to.
But there are plenty of pitfalls still ahead, said Simon Tilford, chief economist at the analyst group the Centre for European Reform.
“The ECB is certainly doing all it can given the political constraints. But it needs to be remembered that the bond purchases will be conditional on countries signing up to bailout programs, programs of structural adjustment," he said.
Another obstacle was overcome this week with the German constitutional court’s approval of the eurozone’s permanent bailout fund worth nearly $650 billion - the European Stability Mechanism.
The building blocks are starting to fall into place,Tilford said.
“But even that could be over-egging it. ECB action is necessary but so is a proper Eurozone banking union, so is some form of debt mutualization,” he said.
And, Tilford added, the Germans are still reluctant to take on the debt of southern Europe.
With confidence in the entire European Union project shaken to its core by the crisis, there was relief from the Netherlands where voters gave pro-EU parties a sweeping victory, said Andre Krouwel, an associate professor at Vu University in Amsterdam.
“People know the Dutch cannot survive outside the European framework. It is a large economy but it’s not an internal market, we’re an export country,” he said.
But there is still little optimism in the eye of the debt storm - Greece. EU and International Monetary Fund officials - the ‘troika’ - are in Athens to persuade Greece to stick to the timetable of spending cuts. Junior coalition leaders are resisting.
Fotis Kouvelis is leader of the Democratic Left party. Kouvelis said the troika and European partners must understand that no measure can be imposed on a society which is disintegrating.
The EU-IMF report on Greece is due out next month and there are fears the country has fallen further behind in its austerity program. The current market optimism could evaporate rapidly if that report makes grim reading, analysts say.