The question now is how far will Eurozone countries be willing to push such reforms before buckling at the first signs of "social unrest". (In Europe, social unrest usually means crippling strikes at best but could be low-grade street warfare. Imagine Saving Private Ryan with hoodies and molotov cocktails.) So far, the Greeks have made it a couple of weeks, but they had to give up the welfare hooch cold turkey. What the markets want to know now is just how much political will do these countries really have for their newfound belt tightening? The first round of the economic crisis produced enough "unrest" to force a change of government in a few state parliaments, and most investors are still keeping a close eye on the political situation in the affected European countries; and by affected countries, I mean all of them.
One thing that is clear is that last week's bailout gave the Eurozone about as much buzz as a couple cans of Miller Light. 24 hours after the initial bounce, investors had time to read the fine print and realize just how enormously risky the bailout package was. I remember having a conversation in 2005 with a couple of German friends in a quaint little French welfare whore of a town near the Belgian Border. On a terrace overlooking the charming craters of a slow-moving public works project, they both stated without even a hint of doubt that the Euro would soon replace the dollar as the world's primary reserve currency. To them, the idea wasn't even controversial. The Euro was to the EU what Tornado was to Zorro; the Europeans, having vanquished their mustache twizzling enemy and his army of nondescript henchmen, were preparing to ride off into the sunset with the film's voluptuous pre-Twiggy muse, Le Fin, roll credits. Somewhere, most of the main characters have since deviated from the screenplay until the current movie resembles one of the more surreal David Lynch productions. We'll see how this plays out.