(MoneyWatch) For Europe, 2012 began as it did for so many others -- with a hangover.
The symptoms stemmed from a failure by the European Central Bank to bail out the Greek government. A year-and-a-half, earlier the European Union and International Monetary Fund had loaned $144 billion dollars to Greece to avert a default by the country on its financial obligations.
The rescue package came with a lot of strings, notably that Greece take immediate action to sharply cut government spending. Such austerity in public spending, along with tax hikes, was supposed to get Greece's economy going again. In fact, it had precisely the opposite effect, plunging the company into a depression.
As the year began, Greece's unemployment rate was 21 percent, and its debt amounted to 133 percent of the nation's $306 billion GDP. It was clear to all that another bailout was needed, although concerns were growing about throwing good money after bad.
At the same time, investors were getting nervous about deteriorating economic conditions in Italy and Spain. This was driving up the costs of borrowing for both those nations, raising fears that Europe's third- and fourth-largest economies could be shut out of the international borrowing markets altogether. The countries' size would make a bailout impossible.
As 2012 comes to a close, the immediate risk of a Greek default, along with a so-called "Grexit" from the eurozone, have ebbed -- for now. Bond yields in Italy and Spain have receded. But if the currency union is not in imminent danger of collapse, the region's financial crisis continues.