How long can Europe float atop Draghi's hot air?

Mario Draghi's "whatever it takes" statements have restored confidence in the eurozone but the underlying debt and competitive issues remain. At some stage these structural issues will have to be addressed.

Are they delusional or can "jaw-boning" be lastingly effective as a policy measure?

The European Central Bank president Mario Draghi declared the "normalisation" of financial market conditions on Thursday night after the ECB decided to keep official rates on hold and said the ECB expected a gradual recovery in economic conditions later this year.

Europe, of course, is in recession. Even Germany’s economy is slipping towards negative growth. Southern Europe has unsustainable debt levels. Unemployment is at record levels across the eurozone and in Greece, Spain and Italy youth unemployment is at staggeringly high levels.

Yet Draghi, while accepting that most of this year will be characterised by economic weakness and that the risks to growth "remain on the downside", seemed quite optimistic.

At face value he has reason to be so. Yields on sovereign bonds have retreated from the destabilising levels that created a sense of crisis – and, indeed, a real crisis – last year, capital is flowing back into the eurozone, equity markets are up strongly, deposits are flowing again into some of the more vulnerable banks and measures of risk and volatility are at low levels. Business confidence is returning.

So what did the eurozone policymakers do to turn what appeared a near-inevitable descent into chaos and fragmentation of the eurozone around? Not much.

It was Draghi’s own vow last year to do "whatever it takes" and buy an unlimited amount of bonds in the most distressed economies that appears to have saved the eurozone from a destructive implosion. The ECB hasn’t actually bought many, if any, bonds as a result of that pledge but the promised worked to stabilise the markets.

Draghi thinks that arresting and then reversing that earlier cycle of negativity is now having a positive impact.

‘’We spoke a lot about contagion when things go poorly but I believe there is a positive contagion when things go well and I think that’s also what is in play now," he said.

The downside risks he sees are related to slow implementation of structural reforms, geopolitical issues and imbalances in the major industrialised economies.

While China’s is showing strong signs of a recovery the US remains weak and its prospects clouded by political divides and Japan is still stuck in a decades-long economic winter. The currency devaluations (which some refer to as "currency wars") occurring from the actions of central banks since the 2008 crisis add another layer of instability and tension.

The real problem for the eurozone is that the combination of unsustainable levels of debt and recessed economies means it remains on the verge of crisis and will do so for some years to come.

Its immediacy may have retreated as sovereign bond yields have fallen back but the structural issues within the eurozone of impossible debt and deficit levels and a lack of competitiveness that were revealed in the aftermath of the global financial crisis remain unresolved and appear almost unresolvable by the EU in its current form.

So far, with the help of Draghi’s jaw-boning, the eurozone has survived intact, muddled along and somehow calmed the financial markets that threatened to pull the rug from under region. It has bought time.

The critical question for global markets and the global economy in 2013 and, perhaps, for years to come, is whether the eurozone economies make good use of that breathing space to do something structural about their condition or whether they continue to muddle on in the hope that the passage of more time will provide a solution. Markets might have "normalised" but that’s a situation that could change, quite literally, overnight.