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Euro zone hopes rise
Don’t be fooled by suggestions that Europe’s debt crisis is easing in any meaningful way. Not yet, anyway. Any easing, though welcome, is minor and could be short-lived.

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The euro may be gaining, and there may be some stronger economic signs from some of the 17 countries that share the common currency. But as this crisis has demonstrated, a market tizzy can be just one downgrade or ill-timed comment away.

For now, the focus has shifted to the uprising in Egypt, and to the potential impact on oil. And the reason no one outside Athens cares about a strike by doctors and transport workers is because it would be odd by this point notto have a strike in Greece.

Yesterday, an affirmation of Spain’s credit rating was taken as a sign that the debt crisis is easing. But consider what S&P analyst Marko Mrsnik also said, according to Reuters: He warned that high private sector debt levels, poor competitiveness and a harsh jobs market - unemployment is at 20 per cent - will pressure that rating for months.

And let’s not forget the mess that are Spain’s savings banks, or cajas.

Consider, too, that speculation continues to mount that Greece will seek a debt restructuring. And that Ireland - whose scenery may be beautiful and literary heroes great, but whose banking system a wreck - is heading into a Feb. 25 election that will probably see a new coalition government with a mess to clean up. Indeed, the man favoured to become the next finance minister, the Labour Party’s Pat Rabbittee, told Reuters on Tuesday that Ireland needs as long as possible to repay its bailout loans.

Add to that the fact that the euro zone’s leaders have yet to hammer out an agreement on measures to finally end the crisis. German officials said today that Chancellor Angela Merkel and her French counterpart, Nicolas Sarkozy, would make a proposal at an EU meeting Friday in Brussels, but that hasn't been accepted yet, and there would be demands attached to that.

Oh, and by the way, Standard & Poor's downgraded Ireland today.

There have certainly been some better signs, and government borrowing costs have dipped. Earlier this week, for example, the ECB ended, for now anyway, its emergency purchases of bonds of euro zone governments, also taken as a sign of an easing crisis.

Carl Weinberg, chief economist at High Frequency Economics, said today that the interbank markets are "all jammed up" in the euro zone.

"We have seen this before at times of severe uncertainty or financial market distress," he said. "Euroland's banks seem to prefer to hoard cash in their vaults rather than lend out excess reserves, unsecured, on the interbank money markets. When banks do not trust each other, they are worried about an adverse sea change in the financial system. The markets are telling us what the credit raters should be warning us about, which is to say that there is a potential storm brewing in the banking sector."

• Euro zone closer to new anti-crisis package
• S&P downgrades Ireland's debt rating
• German proposals give euro zone a glimpse of the future
• Spain inks new economic pact