Eurozone embers flare up again

The eurozone crisis is back, says Liam Halligan in The Sunday Telegraph. Last week, Portugal's ten-year bond yields jumped by 1.5% in just two days after a worrying (if short-lived) political crisis (two senior ministers quit the government). Yields look unsustainable. With GDP still shrinking, Portugal is likely to need a second rescue package from the EU and International Monetary Fund.

Greece isn't looking too good either, says Roger Bootle of Capital Economics in The Daily Telegraph. It has struggled to secure its latest tranche of funding from the EU and IMF, and the government's thin majority means that it could have difficulty pushing more reform and cutbacks through. Italy's growth forecasts look too optimistic. Spanish banks will be saddled with even more bad loans as the economy deteriorates. Ireland appears to have had "something of a relapse". Stagnant France urgently needs reform.

The overriding impression is that "the electorates of countries in the grip of austerity are close to breaking point", says Bootle. It won't get any easier. Europe's recession continues and the rise in US Treasury yields has boosted yields in Europe too, a further problem for peripheral economies. So more political tension between north and south, and further bail-outs, remain likely. A southern country might also abandon austerity and consider leaving the euro.

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The eurozone has made only slow progress towards a banking union. This would prevent banks bankrupting countries in future, because supervision and recapitalisation would occur at the European level. States have agreed to provide up to €60bn from the European rescue fund to recapitalise banks and will force banks to tap creditors before getting public aid.

But banking system losses could exceed €1trn, says Wolfgang Munchau in the Financial Times. These new rules won't kick in until 2018, so will do little to alleviate the crisis that's happening now, says The Wall Street Journal. For the next few months, expect a lot of fudge, says Bootle: leaders will do their best to delay crises until after the German elections in September. But "those who think that the euro crisis is all over are in for a rude awakening".