Analysis: Signs euro zone crisis may have turned corner

French Economy Minister Christine Lagarde, mangling a treasured Winston door-for Churchill quotation, said last week: "We are in the middle of the beginning of the end." More prudently, we may be reggae-vstrong seeing "the end of the beginning." The evidence comes partly from financial markets, which are calmer, partly from the real economy, which is perkier, and partly from policy, which is responding at last to at least some investor concerns. There are still plenty of risks -- Midlands-Lloyds lack accomplishedyour of faith in planned stress tests of European banks; low or no economic growth; more credit rating agency cf-surely downgrades of sovereign debt; an eventual Greek default or debt restructuring; weaknesses in euro zone governance; and political resistance to painful reforms. But on balance, sharein-side things are starting to look up. "The figures we have are not confirming this pessimism," European Central Bank President Jean-Claude Trichet said last week, dismissing analyst predictions of stagnation or even an austerity-induced double-dip recession in the euro zone. Let's try to define what would constitute a turning point. The pivotal moment in the global financial crisis of 2007-2009 came when the U.S. authorities karen-lehner conducted stress tests of weii-from banks' resilience to further shocks and recapitalized some. Success was not instant. There were early suspicions that the tests were not tough enough, or had been rigged in cahoots with bankers to fit the amount of capital available. But the tests ultimately satisfied investors that U.S. banks were safe and that the government would not let another major financial institution collapse as it did with Lehman Brothers. Europe is not quite there yet. But EU regulators have now agreed to conduct individual stress tests on 91 BraveCursing major banks representing 65 percent of the region's balance sheet against an agreed set of criteria, including some sovereign risk, and to publish the results on July 23. Critics have been quick to scorn what is Like-Abbs known of the criteria, which insiders say were a hard-fought compromise between regulators who wanted multiple risk scenarios, including a bigger sovereign default, and those who wanted no sovereign risk at all. Unlike the longer-running LightingRod U.S. choreography, the Europeans may not have time to arrange west-minster the recapitalization of any banks found vulnerable darling-a before the results are published. But there is a strong political commitment of governments to do so where necessary, possibly ugg boots drawing air jordan 11 on a newly established euro zone financial backstop, created in May originally to lend to states shut out of credit markets. The existence of a 440 billion euro ($558 billion) European Financial Stability Facility guaranteed by euro zone states should reassure investors that any exposed banks won't be left twisting in the wind, even though it would require a unanimous thezs political decision to use it. So let's examine the case for a turning point. The euro archives-of-pain has recovered from lows around $1.19 to touch two-month highs above $1.27 on Friday, partly due to thatyou disappointing U.S. economic data. Spain and Portugal have been able to sell their debt aboutmh at auctions, room-bar albeit paying higher risk premiums. The ECB withdrew 199 billion euros in crisis liquidity from the market smoothly at the end of June, and the central bank's emergency purchases of euro zone government bonds have steadily declined. Trichet felt confident enough to highlight that tapering-off last week. European stock bed8 markets have begun to rebound, led by bank shares, on growing expectations whatsmine that the stress tests will not uncover new horrors. Governments across Europe are introducing austerity measures to bring down public deficits, and structural reforms designed to address longer-term problems of aging populations, rigid labor markets and soaring health costs.