EU leaders meeting in Brussels have just approved another bailout package for Greece subject to yet more austerity measures that still need to be sanctioned by the Greek Parliament. But will this mean the end of the sovereign debt crisis Europe is facing?

The financial markets welcomed the agreement but the risk premium still being demanded by investors in Greek, Irish and Portuguese bonds indicates that the sovereign debt crisis is still unresolved and may erupt again quite soon. Few analysts believe the crisis management techniques being adopted by EU political leaders and technocrats are sufficient to resolve the structural economic challenges the eurozone is facing.

Despite the unanimous agreement among eurozone leaders to save the euro, many European citizens do not seem to be impressed. This popular disillusionment is graphically described by a journalist of the Financial Times who wrote: “German voters were told the euro would be a stable currency and that they would not have to bail out southern Europe. They now feel betrayed and angry. Greek, Irish, Spanish and Portuguese voters were told repeatedly that the euro was the route to wealth on a par with that of northern Europe. They now associate the single currency with lost jobs, falling wages and slashed pensions. They too feel betrayed and angry.”

There are some who believe that the only way to resolve the sovereign debt crisis is to promote more political union within the EU. The outgoing head of the European Central Bank, Jean-Claude Trichet, backs the idea of a European Finance Ministry, which implies the centralisation of fiscal governance, at least in the eurozone area. But Europe, unlike the US, still does not have a “strong enough common political identity”. Even at a national level there are still strong objections to fiscal transfers between one region and another.

Some analysts support the present strategy of pretending that the sovereign debt crisis is one of liquidity that could be solved by giving loans to troubled banks and governments. The reality is that Greece and Portugal, and, to a lesser extent, Ireland, are facing a solvency crisis – an inability to pay their debts that have become far too onerous for their fragile economies to support.

Another option that is being resisted by the ECB is for countries like Greece to default in an orderly way by asking their creditors to “voluntarily” roll over maturing debt. Alternatively, they can ask their creditors to take a “haircut” on the amount they are owed – accepting to be paid less than the full amount they lent in the first place. Many argue that this is what insolvent individuals would do, so why not apply this sensible approach to insolvent states? The answer to this question is that such a solution would land many European banks holding Greek private and sovereign debt in deep trouble and taxpayers’ money would once again have to be used to rescue these banks.

Unless European politicians tackle the sovereign debt crisis at its roots, the future of the euro will continue to be at risk. All the solutions on the table carry major political and economic risks and this explains why, so far, politicians and technocrats have failed to agree on a convincing strategy for reform.

Malta does not face such massive sovereign debt problems and it did well to support the Greek bailout. But the island will still be affected by eurozone developments far from its shores.