Is the eurozone crisis almost over?

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Spiro says ECB head Mario Draghi deserves most of the credit for the recent shift in market sentiment towards the eurozone.Improvement in sentiment is largely a result of actions taken by ECB head Mario DraghiMarket commentators should pay more attention to fundamentals and less to fluctuating bond yields The end of 2012 is a far cry from the dark days of 2011 when nervousness about the eurozone was at its highestEditor's note: Dr Nicholas Spiro is managing director of London-based Spiro Sovereign Strategy, a niche consultancy specialising in sovereign credit risk. Dr Spiro advises private and institutional clients on qualitative aspects of sovereign risk, with a particular focus on Europe.

(CNN) -- Is the three-year-old eurozone sovereign debt crisis nearing its end?

The very fact that such a question is being asked with increasing frequency by investment strategists speaks volumes about the dramatic improvement in market sentiment towards the eurozone of late. Psychologically speaking, the end of 2012 is a far cry from the dark days of November 2011 when nervousness about the eurozone was at its highest.

What accounts for this shift in sentiment and is it justified? Mario Draghi, the president of the European Central Bank (ECB), deserves most, if not all, of the credit. By promising in late July to "do whatever it takes" to save the eurozone, Draghi significantly reduced the threat of Europe's single currency area breaking up.

Read more: Greece: When anger goes beyond despair

The results speak for themselves. Spain, the focal point for market anxiety for much of this year, is now seeing foreign capital trickle back into its economy after months of outflows. The yield on Spanish benchmark 10-year bonds, which many investors treat as a proxy for risk in the eurozone as a whole, now stands at just under 5.4%, sharply down from 7.6% as recently as July 24.

As for Italy, whose bond market was collapsing late last year and which is gearing up for a crucial parliamentary election that could take place as early as March 10, investors have never been more sanguine about the country since it got sucked into the eurozone crisis in July 2011. Italy is now selling 10-year bonds at pre-crisis yield levels.

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Read more: The eurozone's reluctant leader

I would not underestimate the determination of the ECB to shore up the debt markets of southern Europe. So successful has Draghi's bond-purchasing pledge been in driving down Spanish and Italian yields that some foreign investors now see Italian bonds as an attractive buying opportunity.

Yet if the risks in the eurozone are receding, why are investors still parking most of their money in "safe haven" German bonds -- and even paying Berlin for the privilege of lending it money as the negative yields at recent auctions of short-term German bonds illustrate?

The answer's clear: Investors rightly believe the eurozone crisis is still far from being resolved and could yet flare up again.

Market commentators should stop focusing solely on government bond yields and start paying more attention to Europe's deteriorating economic fundamentals and its messy politics. There's a reason why Draghi had to step in to stem the panic: Because eurozone politicians keep dithering instead of putting in place measures to secure the financial and economic stability of Europe.

In a nutshell, there's an enduring standoff between a French-led group of member states wary of ceding more sovereignty and a German-led one wary of sharing more risks.

To make matters worse, Germany is even reluctant to share more sovereignty when it comes to allowing the ECB to start supervising its banks -- in particular its weaker regional lenders known as the Landesbanken - as the first stage in plans to set up a banking union across Europe.

It's the politics of the eurozone crisis which matter most now. The big issues in Europe -- establishing a banking union, shoring up Spain, agreeing on a new seven-year European Union budget and, last but by no means least, keeping Greece in the eurozone -- are in the hands of politicians, and not of the ECB.

So when you hear about how successful Spanish and Italian bond auctions have been of late, bear in mind that bond yields are just one gauge --- and by no means the most important -- of whether the eurozone crisis is nearing its end.

The opinions expressed in this commentary are solely those of Nicholas Spiro.

December 14, 2012 -- Updated 1532 GMT (2332 HKT) Mario Draghi's actions have improved the eurozone's short-term outlook, but fundamental issues remain unresolved, writes Nicholas Spiro. December 14, 2012 -- Updated 1041 GMT (1841 HKT) A lack of jobs and slashed benefits are causing some Greeks to leave the cities for rural living. CNN's Diana Magnay reports.December 10, 2012 -- Updated 2041 GMT (0441 HKT) HSBC's head of FX Strategy talks to CNN about the eurozone crisis and warns that too much austerity may prove counterproductive.December 14, 2012 -- Updated 0121 GMT (0921 HKT) Greece's Golden Dawn party says immigrants are to blame for the country's economic strife. CNN's Diana Magnay reports. December 13, 2012 -- Updated 2245 GMT (0645 HKT) CNN's Diana Magnay takes a closer look at the hardships facing the Greek population amid the the country's economic crisis. December 12, 2012 -- Updated 1010 GMT (1810 HKT) Antakis Antonios hasn't had a job for years, lost his wife to tuberculosis and now struggles to support his three children.December 10, 2012 -- Updated 1818 GMT (0218 HKT) CNN's Diana Magnay profiles one of Greece's best and brightest who has decided to leave her country rather than struggle to get by.December 11, 2012 -- Updated 1245 GMT (2045 HKT) Will the prospect of a Berlusconi return cause investors to steer clear of Italian bonds? Count on it, writes Nicholas Spiro.December 10, 2012 -- Updated 1219 GMT (2019 HKT) Is the three-year-old eurozone sovereign debt crisis nearing its end? Dr. Nicholas Spiro of Spiro Sovereign Strategy believes it just might be.November 27, 2012 -- Updated 1204 GMT (2004 HKT) The European Union and the International Monetary Fund agree on a deal that officials hope will finally relieve the troubled country's debt burden.November 19, 2012 -- Updated 1210 GMT (2010 HKT) For three years Greece has suffered a prolonged period of economic and political crisis magnified by unprecedented austerity measures.November 13, 2012 -- Updated 1906 GMT (0306 HKT) Alexis Tsipras, leader of Greece's far-left Syriza Party, says forgiving Greek debt, not more austerity, is the solution to the country's problems. November 21, 2012 -- Updated 1813 GMT (0213 HKT) A small, wealthy region feels bridled by Spanish centralized rule and high taxes. No, it's not Catalonia 2012, but 16th century Holland. November 15, 2012 -- Updated 1201 GMT (2001 HKT) Greece's banking sector is being snubbed by European investors as the troubled country remains mired in recession.November 20, 2012 -- Updated 1651 GMT (0051 HKT) Why are Spanish workers leaving big city life behind in search of job opportunities in small towns and villages? CNN's Al Goodman reports.November 8, 2012 -- Updated 1516 GMT (2316 HKT) As the bloc's new protagonist, the European Central Bank is facing criticisms it has overstepped its remit, and potentially broken the law.November 8, 2012 -- Updated 2045 GMT (0445 HKT) CNN's Fred Pleitgen reports on one auto parts manufacturing plant in Germany that is being hit hard by Europe's economic headwinds.November 6, 2012 -- Updated 1254 GMT (2054 HKT) The eurozone debt crisis is the latest strain in a tumultuous relationship between Greece and Germany. Is the crisis opening old wounds?October 3, 2012 -- Updated 1028 GMT (1828 HKT) Spain, a eurozone giant, is tipped to seek a full bailout as it struggles with steep borrowing costs and high unemployment. How long can it hold out?Today's five most popular stories

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News Analysis: Greek exit? Euro-zone may be ready

Commissioned-dragging and brinkmanship over the past few years have won the other members of the currency union valuable time to prepare for life without Greece. The banks recorded losses of Greek investments, companies are drawing up plans to deal with emergencies and Europe is zazdraviha of rescue for other vulnerable countries such as Portugal, Ireland and Spain.

These measures are also minimized the risks to the United States, making it less likely that "Lehman moment" will spread panic through global financial markets. American investment funds and banks are also sharply reduced their investments in Europe.

But some experts say the Europe preparations remain incomplete and the potential costs of a Greek exit, are highly uncertain and potentially significant. That reality, helps to explain why Germany continues to profess its determination to keep Greece from currency union if possible.

Still, European leaders are not optional — even eager reduced — to publicly comment on the possibility that Greece will leave something they long refused to countenance, not only because relations with Greece to continue to deteriorate, but also as a result of their preparations.

"We have worked hard to mitigate against such a scenario," Dutch Finance Minister, Jan KEES de Jager, told Reporters after a meeting of Ministers of the European finance early this week. "That is why contagion risk is much, much less than one and a half years."

What once seemed unthinkable is being reduced to a budget line. Economists in German Bank recently calculated that a Greek exit will cost the German Government about 100 billion euros (127 billion dollars), or about 3% of the nation's annual economic output.

François Baroin, departing French Finance Minister, said this week that Greek exit will cost France to 50 billion euro, a similar proportion of its production to its economically.

"Greece is not in itself of large transactions. It is not a significant risk and our banks and insurance companies will be able to absorb it, "Mr Baroin told French radio station Europe 1, on Tuesday.

More urgent matter since goes to say, Mr Baroin to consequences for other struggling countries in the lower end of Europe. He warned that the departure of each article may spilt "doubt and suspicion" in the minds of foreign investors on the health of the euro. Stock markets declined around the world and that Europe and will nothing.

The first project of the Finance Minister is to convince the markets that everything is under control, and in recent days, European officials have lined up to insist that the euro will survive.

"They look pretty in ease, quite resigned to the fact that they could deal with it, which I think is a result of the months in which they had to prepare," says Jacob Funk Kirkegaard, research fellow at the Institute for international economics Peterson here.

He said the current round of negotiations is intended primarily to influence the outcome of the Greek elections next month, but he added that that Europe is lawfully in a better position to deal with the worst case.

But Kenneth s. Rogoff, a professor at Harvard and former Chief Economist of the International Monetary Fund, said Europe made progress, but not yet adequately prepared to monitor deposition. He said, Europe without sufficient mechanisms to ensure that loans remains available for other troubled countries, Spain and Italy. In addition, there is no political consensus for support for a loan from the local governments and private companies. And finally, he said, there is no reliable long term to ensure the viability of the euro.

"These are difficult political decisions, that they not only are ready for," he said. "They must be. They had two years to think about it. But they are not ready. "

This article has been revised to reflect the following correction:

Correction of 19 may 2012

Article on analysis on Friday for Europe readiness of Greece possible exit of euro misstated, some editions, the relative price of such exit to the Government of Germany. Actual expenditure, around 127 billion dollars, which is noted properly 3% of annual economic results of Germany, is not less than one-tenth of a percent of the 1.

View the original article here

News Analysis: Greek exit? Euro-zone may be ready

Commissioned-dragging and brinkmanship over the past few years have won the other members of the currency union valuable time to prepare for life without Greece. The banks recorded losses of Greek investments, companies are drawing up plans to deal with emergencies and Europe is zazdraviha of rescue for other vulnerable countries such as Portugal, Ireland and Spain.
These measures are also minimized the risks to the United States, making it less likely that "Lehman moment" will spread panic through global financial markets. American investment funds and banks are also sharply reduced their investments in Europe.
But some experts say the Europe preparations remain incomplete and the potential costs of a Greek exit, are highly uncertain and potentially significant. That reality, helps to explain why Germany continues to profess its determination to keep Greece from currency union if possible. Still, European leaders are not optional — even eager reduced — to publicly comment on the possibility that Greece will leave something they long refused to countenance, not only because relations with Greece to continue to deteriorate, but also as a result of their preparations.
"We have worked hard to mitigate against such a scenario," Dutch Finance Minister, Jan KEES de Jager, told Reporters after a meeting of Ministers of the European finance early this week. "That is why contagion risk is much, much less than one and a half years." What once seemed unthinkable is being reduced to a budget line. Economists in German Bank recently calculated that a Greek exit will cost the German Government about 100 billion euros (127 billion dollars), or about 3% of the nation's annual economic output.
François Baroin, departing French Finance Minister, said this week that Greek exit will cost France to 50 billion euro, a similar proportion of its production to its economically. "Greece is not in itself of large transactions. It is not a significant risk and our banks and insurance companies will be able to absorb it, "Mr Baroin told French radio station Europe 1, on Tuesday.
More urgent matter since goes to say, Mr Baroin to consequences for other struggling countries in the lower end of Europe. He warned that the departure of each article may spilt "doubt and suspicion" in the minds of foreign investors on the health of the euro. Stock markets declined around the world and that Europe and will nothing. The first project of the Finance Minister is to convince the markets that everything is under control, and in recent days, European officials have lined up to insist that the euro will survive.
"They look pretty in ease, quite resigned to the fact that they could deal with it, which I think is a result of the months in which they had to prepare," says Jacob Funk Kirkegaard, research fellow at the Institute for international economics Peterson here. He said the current round of negotiations is intended primarily to influence the outcome of the Greek elections next month, but he added that that Europe is lawfully in a better position to deal with the worst case.
But Kenneth s. Rogoff, a professor at Harvard and former Chief Economist of the International Monetary Fund, said Europe made progress, but not yet adequately prepared to monitor deposition. He said, Europe without sufficient mechanisms to ensure that loans remains available for other troubled countries, Spain and Italy. In addition, there is no political consensus for support for a loan from the local governments and private companies. And finally, he said, there is no reliable long term to ensure the viability of the euro. "These are difficult political decisions, that they not only are ready for," he said. "They must be. They had two years to think about it. But they are not ready. "
This article has been revised to reflect the following correction:
Correction of 19 may 2012

Article on analysis on Friday for Europe readiness of Greece possible exit of euro misstated, some editions, the relative price of such exit to the Government of Germany. Actual expenditure, around 127 billion dollars, which is noted properly 3% of annual economic results of Germany, is not less than one-tenth of a percent of the 1.