The Economist‘s Charlemagne sums it up with characteristic pith: "At two in the morning on May 10th, European Union finance ministers agreed a huge increase in their political will to defend Europe’s single currency, backed by a stunning €750 billion in aid for weak links in the 16 member eurozone. Simultaneously, the European Central Bank took a revolutionary shift away from its inflation-fighting mission, announcing a scheme to buy up government bonds on the financial markets."

As FT’s Wolfgang Münchau puts it, "In the end, there was no choice. Faced with an existential threat, the European Union has demonstrated that it can act fast if necessary. European leaders deserve respect for finally getting ahead of the situation."  Spiegel is dubbing this a "nuclear option," forced by the fact that few believe the belated Greece bailout will be adequate to stop the contagion.

And, in the short term, it doubtless worked.  Stocks rallied worldwide in relief.

Time‘s Michael Schuman is positively giddy:

So I arrived in London this morning, to help out my colleagues with the escalating Europe debt crisis story, only to find out that in the mere 12 hours I was on a plane, not only has the entire face of the crisis changed, the entire continent has changed. After Europe’s leaders did everything they could to undermine investor confidence and spread contagion, they completely reversed course and announced an eye-popping plan to amass nearly one trillion dollars to rescue heavily indebted Eurozone members. This is the equivalent of a financial “shock and awe” campaign, and it seems to have worked.

Then again, "shock and awe" seemed to work in the early days of the Iraq War, too, until it was undermined by a lack of proper follow-up.  As Münchau points out, "[T]his deal is going to be ineffective beyond the very short term, unless it is followed up by substantive reforms – the introduction of a single European bond, an agenda to co-ordinate economic reforms with specific relevance for the monetary union, policies to reduce economic imbalances, much tighter supervision of fiscal policies that kick in well before budgets have already been announced, and, in my view also a kernel of a fiscal union – in essence all the things over which the EU has been, and still is, in denial."  And he is, to say the least, skeptical that these will transpire.

NYU economist Nouriel Roubini, famous for predicting the financial crisis during the fattest days of the bubble,  predicts a "double dip" for Europe, telling Spiegel, "The Continent is vulnerable to falling back into recession. Even before the Greek shock, the outlook was rather moderate, but now euro zone growth is closer to zero."

But Time‘s Leo Cendrowicz doesn’t think there will be much choice. And he thinks that this weekend’s actions shows that Europe’s leaders know that.

It was a weekend rich in symbolism. Sunday was Europe Day, the 60th anniversary of the moment when France, Germany and the other war-shattered European states declared they would pool their resources in a supranational community. The message — from crisis comes opportunity — was not lost on today’s generation of European leaders. With Greece seemingly on the brink of insolvency and markets pounding other vulnerable euro members like Portugal and Spain, the continued viability of the single currency — the European Union’s most emblematic project — is under threat. So in the early hours of Monday morning, after weeks of indecision, Europe’s leaders met the challenge by setting up a colossal €750 billion ($950 billion) crisis fund.

The tone was set in the early hours of Saturday morning, after euro-zone leaders gathered in Brussels to quench any talk of contagion from Greece. "We will not let others undo what generations have created," said French President Nicolas Sarkozy, as he vowed to "fight speculators" and beat back their "attack on the whole euro zone." German Chancellor Angela Merkel said the mechanism would send a "very clear signal" to markets to back off.

[…]

The package foresees other longer-term measures, like tighter budget rules, more effective sanctions for breaking debt and deficit guidelines, and sharper monitoring. It reflects a widespread recognition that E.U. institutions failed to properly scrutinize countries like Greece who fiddled their official budget statistics years ago in order to meet the euro entry criteria. At the same time, the European Central Bank (ECB) has said it is ready to buy in government and private debt "to ensure depth and liquidity in those market segments which are dysfunctional."

Still, even he notes that there are some major obstacles ahead:

It will take more than tough talk, though, to fix the euro. The euro zone already has penalties for countries that flout debt and deficit rules. But the measures, known as the Stability and Growth Pact, lost credibility early on when they failed to punish Germany and France, who persistently breached its rules. And while both Sarkozy and Merkel have recently raised their rhetoric about tighter fiscal discipline, they have shown little inclination towards helping Brussels in its policing of their own national budgets.

More broadly, the euro zone still needs to resolve structural problems that go beyond debt in countries like Greece, Portugal and Spain. The crisis has exposed chasms amongst the different euro zone economies: not only in government debt, but private debt, trade balances, employment, wages and overall growth. It has already prompted dire warnings from Paul Krugman and Joseph Stiglitz, two American economic grandees and Nobel laureates, who both say that without reform the euro zone could collapse.

Indeed, just last week,  Cendrowicz noted that the dithering thus far has worsened the crisis. 

And FT’s Gideon Rachman doesn’t see much reason to think Europe has found the political will to change.

Most of the European Union is living beyond its means. Government deficits are out of control and public-sector debt is rising. If European governments do not use their new breathing space to control spending, financial markets will get dangerously restless again. Unfortunately, European voters and politicians are simply unprepared for the age of austerity that lies ahead.

[…]

Greece’s financial crisis is, unfortunately, an extreme example of a broader European problem. Investors have been looking nervously at debt-levels and budget deficits in Spain, Portugal and Ireland for months. But even Europe’s big four – Britain, France, Italy and Germany – are hardly immune from concern. Italy’s public debt is about 115 per cent of gross domestic product. Some 20 per cent of this needs to be rolled over during the course of 2010. Britain is currently running a budget-deficit of nearly 12 per cent of GDP, one of the largest in Europe. George Osborne, who is likely to end up as chancellor of the exchequer in the new government, has described Britain’s official economic forecasts as a “work of fiction”. The French government has not produced a balanced budget for more than 30 years. And one of the reasons for the deep bitterness in Germany at bailing out Greece, is the knowledge that Germany is already struggling to balance its own books.

[…]

Many have come to regard early retirement, free public healthcare and generous unemployment benefits, as fundamental rights. They stopped asking, a long time ago, how these things were paid for. It is this sense of entitlement that makes reform so very difficult. As the British election has just amply illustrated, politicians are extremely reluctant to confront voters with the harsh choices that need to be made.

Yet if Europeans do not accept austerity now, they will eventually be faced with something far more shocking – sovereign debt-defaults and collapsing banks. For many Europeans that is the kind of thing that only happens in Latin America. The discovery that Latin Europe – and maybe northern Europe, too – can also hit the financial wall will come as a horrible shock.

It’s a good thing that could never happen here in America, what with our Protestant work ethic and pioneer, can-do spirit . . . .

James Joyner is managing editor of the Atlantic Council. Photo credit: Reuters Pictures.

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