We are not out of the woods by a long shot

"The single biggest mistake by Europe was the decision to impose budget targets on Ireland, Greece and Portugal that were impossible to meet," said Simon Tilford, chief economist with London-based think-tank the Centre for European Reform (CER). "The economics of those budget targets were nonsensical. To meet those targets, all three countries have had to cut public spending by unprecedented amounts -- but this hasn't put those countries back on a sustainable fiscal path. In Ireland's case, it has led to wage and price deflation which has pushed up the cost of the country's debt. "Those targets have plunged the private sector further into recession and fundamentally undermined the banks." Even if Europe beefs up its bailout funds, the CER's Simon Tilford is dubious of Europe's ability to handle the collapse of one of its bigger countries. "It is one thing to bail out Greece, Ireland and Portugal ... It's a whole different thing to bail out other countries such as Spain and Italy. Greece, Ireland and Portugal represented about six per cent of the eurozone economy. Add Spain and Italy to that list and those five countries represent about 28 per cent of the eurozone economy. As you bailout more countries, the number of countries carrying the bailout loans gets smaller and the credit worthiness of those countries is damaged as a result."