Has the eurozone's long economic winter finally given way to spring? Some say that's the happy story the data is now telling. On the face of it, growth is back. The European statistics agency, Eurostat, reported yesterday that the output of the 17-member single currency bloc grew by 0.3 per cent in the second three months of this year, bringing to an end six quarters of shrinking gross domestic product. Most economic sentiment monitors have also picked up, even in the worst-hit states.
Financial risk appears to have abated too. The pledge last summer by Mario Draghi, the president of the European Central Bank, to do "whatever it takes" to safeguard the eurozone, and the subsequent unveiling of the ECB's Outright Monetary Transactions (OMT) rescue programme have calmed the nerves of eurozone bondholders.
As a result, the borrowing costs of troubled countries across the periphery have fallen back sharply. Italy's 10-year borrowing costs have declined from 6.5 per cent last July to 4.2 per cent. Spain's are down from 7.5 per cent a year ago to around 4.5 per cent. That's still not comfortable, but some distance from bailout territory. Irish borrowing costs are even lower, at 3.9 per cent.
The genesis of the eurozone's crisis was in the vast current account deficits that peripheral nations ran in the first decade of the single currency's existence. Those have now come down drastically, and even vanished in some cases. Spain is projected to run a surplus of 1.1 per cent of GDP this year. Greece's deficit ballooned to 15 per cent of GDP in 2008 but in 2013 it will be close to zero.
The Continent's spending cuts and tax rises are now past their worst. The fiscal drag from austerity this year will be around 0.7 per cent, down from 1.5 per cent in 2012, according to Berenberg Bank. Next year it is likely to be just 0.3 per cent. "By and large the eurozone is on the right track," says Holger Schmieding of Berenberg.
But the latest aggregate growth figures mask a yawning divergence in performance. The dominant member of the bloc, Germany, grew strongly, expanding by 0.7 per cent in the second quarter. France also surprised many by expanding 0.5 per cent. But Italy, Spain and Ireland are all contracting. So too is the Netherlands. And Greece, having already lost a fifth of its output since 2009, is still falling.
Despite the GDP expansion, Europe remains in the grip of a severe credit crunch as banks that over-exposed themselves in the boom years continue to deleverage. Small and medium-sized firms across the Continent have found themselves shut out by lenders. "Momentum only truly builds when credit channels start to function better, and the euro area still remains a long way behind on this score," says Marchel Alexandrovich of Jefferies.
Unemployment across the bloc remains high. The latest average joblessness rate for the eurozone was 12.1 per cent. There are extreme divergences here, too, ranging from a comfortable 4.6 per cent of unemployment in Austria, to 27 per cent in Greece. Youth unemployment is at crippling levels in the periphery. More than half of Spanish and Greek under 25s are out of work.
Current account deficits have indeed fallen, but the data breakdown suggests this has mainly been achieved by crushing imports and high unemployment rather than a surge in exports and gains in competitiveness. The danger is that these deficits will simply rebound if domestic demand returns.
Despite multiple rounds of austerity, weak growth has led to stubborn budget deficits in several states. That means national debt levels in several vulnerable eurozone member are still on an upward trajectory. Ireland's national debt is set to reach 107 per cent of GDP next year. Italy's debt burden will hit 106 per cent.
"The indebted countries of the periphery are still mainly in recession and a very long way from the rates of expansion needed even to begin to eat into their enormous debt burdens," according to Jonathan Loynes of Capital Economics. The International Monetary Fund said last month that Greece is likely to require more debt forgiveness next year.
Mr Draghi has successfully calmed financial markets, but his OMT bond-buying programme has not been stress-tested by them. It may prove wanting. Meanwhile, the eurozone governments have placed other financial stabilisation reforms – such as the creation of a European banking union – on the back burner since Mr Draghi made his pledge.
Yet the most immediate risk to the eurozone probably comes not from bond traders but from angry electorates. An election in a periphery state could easily throw up a government that will refuse to implement the austerity measures or reforms demanded by the rest of its partners.
The eurozone has already had a narrow escape in Greece, with near victory for the left-wing Syriza coalition in 2012. The incredible surge of Beppe Grillo's radical Five Star Movement in Italian elections in February is another straw in the wind. Both non-mainstream parties drew the support of wide sections of society suffering from high unemployment and a severe fiscal squeeze. The political situation remains highly fragile. It would not take much to cause the crisis to flare-up again.
A sustained period of strong growth would, without doubt, help to alleviate the eurozone's problems. This would establish a virtuous circle by bringing down unemployment, boosting tax revenues, facilitating private-sector deleveraging, and cushioning the pain of necessary labour market reform. Growth would help fix the financial sector, too, and diminish the risk of another bond-market panic that spills over into the real economy.
But eurozone policymakers have complacently assumed growth in the past, only to discover that it did not materialise. They need to pray that the economic season of the beleaguered eurozone really has changed.
Germany's turn: Crucial poll ahead
No one will have been more pleased with the latest eurozone GDP figures than Angela Merkel.
The leader of the Germans conservative Christian Democrats will compete in federal elections next month as she attempts to win a third term as Chancellor. The German economy now seems to be motoring, registering 0.7 per cent GDP expansion in the second quarter.
But a return to growth across the eurozone is also very helpful for Ms Merkel since she can cite it as a vindication of her policy of demanding tough reforms and austerity in the periphery return for German-underwritten bailouts.
Her party is already leading in the polls, and this looks like an almost impregnable platform for victory. Yet she is still likely to need to form a coalition. And the bailouts may not be over. Ms Merkel may find herself forced to say go back to the German parliament to request more cash next year.
Will she stick to the old hard line? Or might she emerge more flexible? Much will depend on the make-up of the coalition. A grand coalition with the pro-European Social Democrats would imply the former. Another partnership with the eurosceptic Free Democrats would imply the latter.
Elections from Greece to Italy have shaken the eurozone. Now it is the turn of Germany's voters to have their say.