What has changed with the €500 billion EU bailout package? Not much. Greece, Spain, Portugal, Ireland, and maybe even Italy, are still on track to debt madness. Their debt ratios and budget deficits will look even worse in three years from now. As markets rightfully anticipated last week, debt restructuring still looms at the horizon for those countries. There is no other way out of this mess. It is as simple as that. The bailout package can only delay this process for one or two years.
So, will the “attacks” against the Euro stop? No, they may become even stronger, as the European Central Bank now made clear that they are willing to inflate Europe out of this crisis. Though, inflation might be some years away, because of a possible double-dip recession (and even depression in the “PGS” countries) and because of dramatic undercapitalization of European banks after the financial crisis of 2008/09.
Furthermore, now the “PIIGS” have no incentives at all to restrain their debt issuance. This will lead to further international political clinches. It might even end with (some of) the PIIGS leaving the Euro.
<sarcasm>However, there is one possibility for a different outcome, but I doubt that it will be considered: We could get high inflation in countries that are not headed for depression right now, like Germany, France, and so on, if the ECB pumped trillions of freshly printed Euros into the market. Assuming that the PIIGS would inflate more slowly because of their banks being almost in default mode (they need the Euros for recapitalization), we could indirectly devalue their economies against the “competitive” ones without having them leave the Euro.</sarcasm>