Europe debt woes take a vacation By Paul R. La Monica, assistant managing editor

NEW YORK (CNNMoney) -- Are the PIIGS no longer a problem? Or are people just paying so much attention to Egypt that we're all forgetting (or ignoring) the financial mess in Europe?

It's an interesting question. The euro struggled against the dollar at the start of the year, dipping below $1.30 in the early part of January. But in the past few weeks, the euro has roared back. It has gained nearly 7% against the greenback and is hovering around $1.38.

The European debt crisis
An interactive map of European Union countries by debt load. More

European stocks have also enjoyed a healthy beginning to 2011. The Euronext 100 has gained almost 5% while France's CAC 40 is up nearly 7%.

There are even strong signs of life in some of the most troubled parts of Europe, the countries that make up the five little PIIGS. For example, Greece's main stock index, the ASE, surged more than 15% in January.

Greek stocks rose further Tuesday after investment bank Credit Suisse upgraded its outlook on Greek equities.

In its report, Credit Suisse analysts in London noted that Greek stocks "look cheap." The analysts added that the problems in Ireland and Southern Europe (the other PIIGS are Portugal, Italy and Spain) are "not a systemic crisis."

Hopes are growing that European leaders will continue to support the weakest nations on the continent.

There has even been chatter that the EU may consider a debt restructuring plan similar to the so-called Brady bonds (named for former Treasury Secretary Nicholas Brady) that Latin American nations issued in the 1980s to help solve their fiscal problems.

In a nutshell, the European Financial Stability Facility, a fund created by EU member nations last year, could buy older debt securities from some of the PIIGS countries and swap them for newer long-term bonds at lower rates.

"What's happened over the past month is that slowly, but surely, a consensus seems to be building about how the Greek bailout can actually work," said Andrew Busch, global currency and public policy strategist with BMO Capital Markets in Chicago.

It does appear as if the worst may be over for Europe. Manufacturing activity picked up in January, according to a report from research firm Markit Economics.

While much of the strength was led by Germany, Austria and the Netherlands, it's encouraging to note that manufacturing rebounded sharply in Spain, Ireland and Italy.

In addition, the labor market in Europe, like the U.S., is slowly improving. Analysts with Barclays Capital in London wrote in a report Tuesday that the unemployment rate in the eurozone likely peaked in the fourth quarter of last year.

Still, doesn't it seem just a bit reckless to declare that the sovereign debt problems facing Greece, Portugal and other euro nations are now ancient history?

Investors have a funny way of brushing concerns about one region under the rug when another portion of the world blows up.

That may be what's happening now with Egypt and several other nations in Northern Africa and the Middle East, a group I've dubbed the MAJESTY countries: Morocco, Algeria, Jordan, Egypt, Sudan, Tunisia and Yemen.

Alex Bellefleur, financial economist with Brockhouse Cooper, a brokerage firm in Montreal, said investors might be making a mistake if they think that Europe is no longer going to be a problem. He said that the euro may be ahead of itself.

"There is still a lot of refinancing that has to be done for European sovereign debt," he said. "Demand has been strong in recent bond auctions, but the cost to borrow has been high. The markets may be more favorably disposed right now to Europe, but the crisis is not over."

Even if the EU is able to rework the debts of the troubled peripheral nations in Europe, that's not the same as eliminating those massive financial burdens.

"Restructuring may not be that much different than a default. It just crystallizes losses for investors," Bellefleur said. "The debts are still there. It will be a long process to get them to a more sustainable level."

-- The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any individual stocks.  To top of page

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