“What do the following have in common: the tax imposed on Cypriot bank deposits last month, a Portuguese court’s annulment of some of the government’s austerity measures, and the recent political stand-off in Italy?

“They all suggest the European crisis is far from over despite the calm brought to financial markets by European Central Bank President Mario Draghi’s promise last summer to buy unlimited amounts of the debt-ridden countries’ obligations.

“There is a sense of foreboding in the region. The risk of a flight of bank deposits to safer countries has risen, and sharp economic contractions extended to Germany and France in the final quarter of 2012. The European Commission anticipates that regional unemployment will continue to rise and reach a record 11 per cent in 2014.

“Fortunately, these dark clouds come with a silver lining. More governments are recognising that the current system of bailouts accompanied by austerity dooms the economies to perpetual recession and worsens debt ratios. While smaller countries such as Greece or Portugal lack the leverage to force an alternative solution, the prospect of a long recession in Spain and Italy could be a game changer.”

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