Are we out of danger yet?

De Spiegel. After the Summit: Starting Fresh in Euroland

Greece's potential short-term non-payment has been considered a danger to be avoided at all costs. The ratings agencies have been waiting for such a "default" to downgrade Greece -- in case government bonds have to be exchanged for new bonds with different terms, for example, or in case the terms have to be extended. But that's precisely what will happen now. The agencies have indicated, however, that new bonds can immediately be upgraded after an exchange -- because then the EFSF would guarantee them.

Jürgen Matthes, at the Cologne Institute for Economic Research, says the danger still isn't over just because the ratings agencies have agreed to cooperate. "It can't be a guarantee that the financial markets reject," he said, adding that investors may yet react to Greece's short-term default with irrational speculation against other debt-ridden nations. "This could be playing with fire. It could still start a conflagration," he said.

Matthes points to an announcement from the ratings agency Moody's, claiming that other nations may be downgraded in the event of Greece's short-term non-payment.

If it came to that, said Matthes, "then something about the system is broken; then we're just programming in self-fullfilling prophecies." In this case it would be seen as legitimate to pressure the ratings agencies through American government oversight.

UK Telegraph: How many more times can eurozone visit 'last chance saloon'?

Surely it's impossible for the eurozone ever to revisit the events of this past week and maintain its credibility. But it’s far from certain that Europe is now crisis-free, thanks simply to the outcome of Thursday’s summit captured in a 1,300-word statement.

After yesterday morning’s brief euphoria, the cracks started to show and by tea time we had resumed the now familiar pattern of Italian and Spanish bond yields rising, while those in Germany and the UK were falling. Gold pushed through new highs.

Market reaction to the bail-out was predictably immediate but Merkel & Co are refusing to add any more detail to, say, the rules surrounding how the European financial stability facility will work. This is the key vehicle for stemming the contagion in Greece, Ireland and Portugal from spreading to Spain and Italy. Incredibly, that won’t happen until after the continent’s summer break. Angela Merkel won’t put the package to the German legislature until September.

The economic challenges facing these peripheral countries won’t cease. The newsflow reporting these events won’t take a break and neither will investors wanting to react, which means markets won’t pause and wait for the politicians and eurocrats to get a tan.

Europe’s previous attempts to get ahead of the problem were widely dismissed as kicking the can down the road – hence the need for Thursday’s emergency summit. Experts are now likening these latest bail-out arrangements to rolling a snowball down a hill

The markets will have looked at Thursday night’s statement, seen the obvious gaps and may well launch a new assault on Spanish and Italian debt next week to test the resolve of this new regime. But nothing new is actually in place to stop the rot. We saw it in 1992 when sterling was forced out of the European exchange rate mechanism. Governments can draw as many lines as they like but without the necessary resource, and the legitimacy of statute, those lines will prove no more effective than a line of pine trees in an avalanche.