Here’s why we should be skeptical.

Debt Virus Spreads During Make-Believe Recovery

Wednesday, August 18, 2010
By Matthew Lynn, Bloomberg Opinion

The euro area is growing again. The banking system has survived its stress tests. The Greeks have implemented their first austerity measures with some success.

The fevered predictions of the early summer that the euro was doomed, and that Europe’s sovereign-debt crisis would rip through countries such as Spain and Portugal like a virus, have been forgotten. The crisis appears to be over.

Don’t believe it. Under the surface, the cracks in the euro are getting worse. The imbalances in the euro area are growing all the time. The resistance to the bailout package will rise as the terms turn out to be immoral and absurd. And the big-deficit nations are locked in a downward economic spiral.

The euro has bought itself some time, at a huge cost. And yet little has been done to fix the causes of the crisis.

True, there have been signs in the last month that the situation has stabilized. Last week, the European Union said the 16 economies sharing the euro grew 1 percent in the second quarter, the strongest rate of expansion in four years.

Most of Europe’s banks passed the “stress tests,â€