Europe is exhaling in debt crisis

FRANKFURT, Germany -- Europe has taken a step back from the brink.

Three weeks into the year, borrowing rates for debt-saddled countries have fallen to more manageable levels. Auctions of government debt have gone better, a sign of increased investor confidence.

And while it may have been an embarrassment, especially to France, a sweeping downgrade of nine European countries last week by Standard & Poor's, the credit rating agency, has been met with a shrug in financial markets.

All this is in stark contrast to the final weeks of last year, when countries such as Italy, Spain, Portugal and Greece watched helplessly as the costs of managing their debt spiraled ever higher, and governments fell in Athens and Rome.

High hurdles remain. Greece must still cut a deal with its private creditors, to say nothing of the long-term problems: massive debt, uncompetitive economies and the prospect of years of cutbacks in public spending.

But for the moment, the continent is exhaling.

Portuguese Finance Minister Vitor Gaspar, after his country successfully sold 2.5 billion euros worth of its national debt on Thursday, ventured it was "a sign that we may be coming to a turning point."

Despite having an AA+ credit rating now, France easily sold about $12.2 billion in bonds at interest rates lower than at previous auctions when its rating was AAA. The sale eased fears that S&P's downgrade of France would hurt the finances of the continent's No. 2 economy.

Stock indexes in Britain, France, Germany, Italy and Spain, plus the Dow Jones industrial average in the United States, have climbed back close to their levels from last August, when the crisis spread to Italy and took a turn for the worse.

The European Central Bank, chief monetary authority for the 17 countries that use the euro, gets some of the credit for sending cash flowing to banks -- and through them, it appears, to troubled countries.

In December, the ECB said it would lend banks unlimited amounts of money, and lower the interest rate on loans to 1 percent, extend the maximum term to three years and accept collateral of lower quality. The banks responded by borrowing 489 billion euros and using some of them to buy government bonds.