Global financial markets and the euro have responded positively to news of the recent move by the European Union and International Monetary Fund to create a package of emergency funds to fend off the debt crisis. The funds amount to up to €500bn and €250bn, respectively.

Although the move has helped to reverse the slide in world financial markets, longer term questions remain about whether Europe's weakest economies can manage their debt.

In the short term, financial analysts expect the dramatic decision to tame the worst of a crisis that had steadily intensified over the past five months and threatened the global economy.

With the European Central Bank also agreeing to buy eurozone government bonds in the open market, the collective impact has been to erect a vast, imposing safety net under the euro area to prevent Greece's debt crisis spiralling and infecting Portugal, Spain or other EU member states.

But the latest agreement has done nothing to address the political and structural economic differences across the 16-country eurozone, and the broader EU, which were the catalysts for the crisis in the first place.

‘What they've put in place is a mechanism to react to a crisis,’ said Janis Emmanouilidis, a senior analyst at the European Policy Centre, a Brussels think-tank.

‘That does not mean that they have put in a place a system to coordinate economic policies in the long term, and that is far more important for long-term stability.’

The core of the crisis lies in the high deficit and debt conditions immediately afflicting the likes of Greece, Portugal, Spain and Ireland, as well as the deeper structural economic shortcomings southern European countries have long had.

As EU policymakers and German Chancellor Angela Merkel have repeatedly emphasised, the key to the eurozone being able to fend off future crises is getting budget deficits and debt under control while forcing deep-rooted adjustments to those economies that lack competitiveness and are hampered by slow growth.

None of these issues are tackled by the €750bn fund.

Greece, which has suffered the most in the debt crisis, has had to push through severe austerity plans - making promises to cut state pensions, free up labour markets, raise taxes and rid the economy of waste - in order to secure EU bailout funds of €110bn.

Portugal, Spain, Italy and other eurozone member states will now be under pressure to take similar steps to Greece, however politically unpopular, in order to insulate the region in the long term and remove the need for the emergency funding.

But that process, if it happens, will be long and deeply divisive, pitting Germany and its northern eurozone allies against those countries not seen to be pulling their weight. The fallout could include social unrest like that happening in Greece.

‘There are going to be many years of pain in southern Europe - this is just the beginning,’ said Charles Grant, the director of the Centre for European Reform in London.

‘The underlying cause of the crisis, which is the lack of competitiveness in the southern European economies, has not gone away. It's very hard to see how the crisis will lift for up to five years because the competitiveness issue is so serious.’

What the crisis has done, however, is galvanise the eurozone and the broader EU into taking hard and fast action.

For nearly six months after the Greek debt crisis erupted, eurozone leaders talked about taking measures and said they had deals to protect Athens, but financial markets were not convinced and ultimately forced the eurozone's hand.

Now leaders have acted with resolve in creating the €750bn euro emergency mechanism and may well have succeeded in seizing back the initiative from financial markets, which many EU officials had criticised for exacerbating the crisis.

But analysts say the EU has really just bought itself time. There will be scepticism again if leaders do not grasp this opportunity to get their finances in order and take the tough decisions that will strengthen their economies in the longer term.

And it is not just a case of southern Europe overhauling its pensions and labour policies. Germany has to acknowledge that its large trade surplus and lacklustre domestic demand also cause imbalances that affect the eurozone economy.

‘Germany isn't understanding that it is part of the problem,’ said Grant at the Centre for European Reform.

‘It has to stimulate demand to reduce its current account surplus, but that is going to lead to more political tension and discussion over who needs to do what to correct the economic imbalances.’

EU leaders have already spent months talking around the issue of ‘economic governance’ - code for establishing much better coordination within the euro area and the 27 EU states to avoid a worsening ‘two-speed’ Europe.

‘In the long term they need to decide what they are going to do about fiscal policy, taxation, labour markets, pensions systems,’ said Emmanouilidis, listing some of the more complex challenges the EU is going to have to tackle.

‘Those are steps you don't take in the midst of a crisis - and we are still in the midst of a crisis.’

(Luke Baker, Reuters)