Skip to main content

Is the eurozone crisis almost over?

By Nicholas Spiro
December 10, 2012 -- Updated 1219 GMT (2019 HKT)
Spiro says ECB head Mario Draghi deserves most of the credit for the recent shift in market sentiment towards the eurozone.
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 Draghi
  • Market 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 highest

Editor'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

Dr. Nicholas Spiro
Dr. Nicholas Spiro

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.

France's credit rating woes
SAP's Snabe: No need for 'Grexit' plans
Eurozone crisis continues to take toll

Yet what if Draghi hadn't pledged to do what's necessary to prevent the eurozone from breaking apart? Would Spanish and, to lesser extent, Italian interest rates have fallen so sharply without the promise of bond-buying from the ECB? Definitely not. The recent improvement in sentiment towards the eurozone stems almost entirely from the actions of one man - Draghi.

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.

Part of complete coverage on
August 27, 2013 -- Updated 1943 GMT (0343 HKT)
German Finance Minister Wolfgang Schaeuble says the eurozone's problems are not solved, but "we are in a much better shape than we used to be some years ago."
September 4, 2013 -- Updated 1528 GMT (2328 HKT)
The G20 is held in Russia but, amid disagreements over Syria, can anything be done? John Defterios investigates.
July 10, 2013 -- Updated 1502 GMT (2302 HKT)
Summer could not have come soon enough for Lloret de Mar, a tourist resort north of Barcelona. Despite the country's troubles, it's partying.
June 7, 2013 -- Updated 1750 GMT (0150 HKT)
The euro club has suffered major shockwaves but its newest member has emerged as an economic star. What;s behind Estonia's success?
May 29, 2013 -- Updated 1323 GMT (2123 HKT)
The global recovery has two speeds: That of the stimulus-fed U.S. and that of the austerity-starved eurozone, according to a new report.
May 14, 2013 -- Updated 1326 GMT (2126 HKT)
The flags of the countries which make up the European Union, outside the European Parliament in Strasbourg, France.
The "rich man's club" of Europe faces economic decay as it struggles to absorb Europe's "poor people", according to economic experts.
May 27, 2013 -- Updated 0256 GMT (1056 HKT)
Europe's competitiveness is threatened as manufacturing companies scrambling to find enough skilled engineers.
July 10, 2013 -- Updated 1502 GMT (2302 HKT)
Spain's economic crisis is in its sixth straight year yet tourism, worth 11% of GDP, is holding its own, one of the few bright spots on a bleak horizon.
May 2, 2013 -- Updated 1044 GMT (1844 HKT)
As European financial markets close for the spring celebration of May Day, protesters across Europe and beyond have taken to the streets to demonstrate.
April 26, 2013 -- Updated 1210 GMT (2010 HKT)
As Croatia prepares to enter the 27-nation European Union, the country's Prime Minister says Italy must return to being the "powerhouse of Europe."
April 25, 2013 -- Updated 1656 GMT (0056 HKT)
Spain's unemployment rate rose to a record high of 27.2% in the first quarter of 2013, the Spanish National Institute of Statistics said Thursday.
March 25, 2013 -- Updated 1355 GMT (2155 HKT)
The financial uncertainty in Cyprus is generating images of long lines at ATM machines and anti-European Union protests.
March 25, 2013 -- Updated 1815 GMT (0215 HKT)
Cyprus will "step up efforts in areas of fiscal consolidation." Where have we heard that before? Oh yes. Greece.
March 23, 2013 -- Updated 0139 GMT (0939 HKT)
The Cyprus debt crisis is being felt by the banks but also by the people who work at them. Nick Paton Walsh reports.
March 22, 2013 -- Updated 0010 GMT (0810 HKT)
CNN's Nick Paton Walsh reports on a Russian hotel maid caught up in Cyprus' financial crisis.
March 18, 2013 -- Updated 1608 GMT (0008 HKT)
Never underestimate the capacity of the Eurozone to shoot itself in both feet, says CNN's Richard Quest.
February 21, 2013 -- Updated 1603 GMT (0003 HKT)
Spain has seen hundreds of protests since the "Indignados" movement erupted in 2011, marches and sit-ins are now common sights in the capital.