Europe’s $1 trillion effort to shore up nervous financial markets should calm the waters for now but they don’t necessarily solve the region’s fundamental problems, analysts suggest.

Fitch Ratings says that its’ preliminary assessment of the measures announced over the weekend and this morning by the European Union, European Central Bank and the IMF, “is that they materially reduce the risk of self-fulfilling market ‘runs’ on European sovereigns and may mark an important strengthening of the Euro area fiscal surveillance and policy framework.”

The measures include a “European Financial Stabilisation Mechanism”, which is being set up by the EU, worth about 500 billion euros, plus 220 billion euros from the IMF; financial market interventions by the ECB; the reintroduction of some emergency liquidity measures, including temporary liquidity swap lines with the U.S. Federal Reserve Board.

“The creation of an emergency financing facility should help contain the threat to fiscal and financial stability in the Euro area by reducing governments’ vulnerability to ‘confidence shocks’ and extreme market volatility,” the rating agency says. However, it also cautions that details about the measures remain limited and that it is too early to come to a definitive judgment on the broader long-term implications for the fiscal and financial stability of the Euro area.

IHS Global insight notes that the initial market reaction to these measures has been very favourable, and it calls them “impressive”, noting that they indicate that “the authorities are finally coming to grips with the contagion threat to a number of countries stemming from the Greek debt crisis. As a result, they should, temporarily at least, alleviate market concerns over the ability of Greece, Portugal, Spain, and Ireland to meet their funding requirements over the next three years.”

“However, although the package will buy time for all of these countries, and Italy as well, they still have to take the necessary austerity measures needed to rein in their public finances and tackle the fundamental structural problems facing their economies. Failure to do so will not only mean that these problems will persist over the long term, but may also increasingly dilute some countries’ — notably Germany’s –willingness to continue contributing to a rescue package,” it adds.

Moreover, IHS says that the sort of austerity measures that are need could prove both politically, and economically, unpalatable. “This will not go down well with voters, and it is questionable whether governments will have the appetite to follow this path,” it notes. “The best hope is that a generally benign global economic environment makes the adjustment process easier.”

IE