Until early summer it seemed that the eurozone was destined to crumble under the pressure of the markets. But, European policy-makers got their act together, initiating a turnaround in the long euro crisis saga. The crisis is not over, but it has entered a calmer phase.

Mario Draghi has taken the fear that the euro could collapse tomorrow off the table. He has effectively staked his job and reputation on the currency’s survival. This is credible since he has the backing of the vast majority of the Governing Council of the ECB. Moreover, the new mechanism unveiled in early September – Open Market Transactions (OMT) – has the implicit backing of the German government, which has also a vital interest in not seeing the euro collapse.

Heads of state have finally acknowledged that fiscal adjustment and structural reforms alone are not enough to establish market confidence. The movement towards a banking union, which started with the European Council meeting in June, constitutes a second key element to stabilizing markets.

Even Greece seems to be stabilizing. The country has now achieved a “rough” primary balance, both internally in fiscal accounts and externally, with exports of goods and services covering imports. The creditor countries have recognized this and are willing to lend Greece the money it needs to pay the interest owed. A “Grexit” has now become much less likely.

Near-term flashpoints are thus under control. That does not change the fact that the adjustment in the periphery to the “new normal” of depressed domestic demand will be long and painful; export growth will be the only way out. This will be a slow process.

It took Germany 10 years (1995-2005) to adjust to the end of its own reunification-induced boom. It is thus likely that it will take countries such as Spain or Ireland at least until the end of this decade to fully recover from the end of their construction booms. Countries like Portugal or Greece will simply have to adjust to a lower level of consumption given that they can no longer rely on inflows of foreign capital.

The euro crisis is not over by any means. But, from now on, recovery becomes a marathon, not a sprint.

Author: Daniel Gros, Director, Centre for European Policy Studies (CEPS), Belgium; Member of the Global Agenda Council on Europe

Image:  Traders work at their desks in front of the DAX board at the Frankfurt stock exchange REUTERS/Reuters Staff