REGULAR readers know that my view of the likely outcome of the crisis in Europe is a gloomy one. This hasn’t changed. Given a number of positive developments in the euro zone—like fairly successful debt auctions for Spain and Italy, and corresponding drops in bond yields—it’s worth keeping a close eye on the situation to make sure that something important and positive hasn’t actually happened.The European Central Bank’s introduction of its long-term refinancing operations late last year has had several significant effects on the dynamic in the euro zone. First, it had an immediate impact on the liquidity crunch that threatened to bring down the euro-area banking system. Banks that were having an increasingly difficult time rolling over the short-term financing they need to survive were given the opportunity to borrow huge amounts of money from the ECB at very low rates and fairly long—3 year—durations. Boy did they seize it. the first LTRO provided some €489 billion to European banks. The next round, to take place in February, may involve even more lending. For now, that seems to have removed a major, immediate threat to the euro zone.Secondly, the ECB’s action took the air out of sovereign debt markets at a very fortuitous time. Lots of observers were very worried about the large amounts of debt Italy and Spain were scheduled to sell in the first month or two of this year. …

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The euro crisis: Checking in on Europe