David Prosser: Europe's sovereign debt crisis is still not under control

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The Independent Online

Outlook Just what will it take? First the Greeks promised swingeing budgetary cuts. The ensuing market sell-off suggested that no one believed them. Then the European Union and the International Monetary Fund promised to back Greece. Another market sell-off was the only reaction. Finally, at the weekend, the EU and the IMF signed off on a deal to lend to Greece. And the markets' response? No prizes for guessing.

Yesterday's stock and currency market setbacks weren't prompted only by the Greece situation – the Australians' new tax on the miners and anxiety about Chinese economic growth piled on the misery – but it is clear that the IMF deal has not drawn a line under the eurozone's crisis. Fear remains that Greece will eventually default on its debts, and we continue to wonder just how serious the budgetary problems in both Portugal and Spain might become.

Why such scepticism about the extent to which the IMF bailout will enable Greece to turn the corner? Well, for one thing, the ongoing protests in the country underline just how difficult it will be for the Greek government to make good on the spending cuts it has promised. Also, the assumptions being made in Athens, particularly about the extent to which the damage to the economy from this crisis can be limited, remain on the optimistic side. And finally, the bailout is not yet formally agreed: the German parliament, for one, has still to back it.

Yesterday's events underlined just how difficult it is to calm markets once they move into panic mode. Portugal and Spain would do well to take note. The governments of both countries know that thanks to the credit rating agencies they are next in line for a run on confidence, despite their insistence that their situations do not compare to what has happened in Greece.

If there was any doubt in either government's mind about the scale of the challenge ahead, the size of the cheques they will shortly be sending to Athens should dispel it. Despite their own fiscal difficulties, Portugal and Spain will between them contribute €10bn to the Greek bailout.

For now, however, the betting must be that this will not be the last bailout in the eurozone. The fiscal measures promised so far by Portugal and Spain do not convince. Their debt looks vulnerable to Greek-style fears. This crisis has further to run, however much Spain's politicians might seek to dismiss market gossip as madness.