Clearly, the ECB's effective actions in both the euro area bond and money markets began to bring investor confidence back. During the week following the ECB's pledge, bond yields in Italy and Spain fell by 16 and 15 basis points, respectively.
Europe's Jobs Crisis Comes Into Sharper Focus
Encouraged by the ECB's decisive actions, markets were also impressed by the political courage of new governments in indebted countries as they continued to pursue highly restrictive fiscal policies and job-destroying structural reforms, despite riots, general strikes and growing poverty and destitution.
And then came what was bound to happen. Austerity exhaustion began to set in. Recent months have shown that, after three or more years of depression and rising unemployment, several countries had hit the limit to political tolerance of fiscal austerity. Reeling under growing social unrest, Spain and Portugal were the first to ask for a few more years to reach deficit targets. Italy revolted, throwing out what the comedian-turned politician Beppe Grillo called the government of "rigor montis" (a play on words for "rigor mortis" or stiffness of death) as he accused the former Prime Minister Mario Monti of conducting German-imposed austerity policies.
But the austerity debate was far from dead. As recently as late last month, austerity advocates were arguing during the International Monetary Fund (IMF) spring meeting in Washington D.C. that spending cuts and tax hikes were not impediments to growth in recessionary economies. And they are still fizzing with fury. Irritated by the political backlash against their policy prescriptions, they are ignoring evidence that countries like Italy, Spain and Portugal had reached a point where it was no longer possible to reduce budget deficits and public debt in economies sinking at annual rates between 3.7 percent and 7 percent.
The End of 'Stupid' Europe?
Now, don't believe for a moment that disciplinarians had problems with basic concepts of economics and public finances. "We are not stupid," thundered recently the finance minister of a euro area country championing austerity policies. No, they are not. And it is not about austerity. It is about their total lack of confidence in their euro area partners' commitments to sound economic and fiscal policies. They, therefore, want to keep their indebted partners' feet to the fire. As the president of one of the disciplinarians' central banks told a French newspaper: "You don't give a credit card to people whose spending you cannot control."
It makes one wonder how it is possible to live in a monetary union with countries whose commitments to common rules cannot be trusted. But that is a story for another day.
Meanwhile, extra time given to France, Spain and Portugal to meet their budget deficit targets is not a departure from the rules set out in the euro area fiscal agreement. And neither is it a free pass, because these countries' economic policies will be under close and constant monitoring by the E.U. Commission and euro area peers.
The damage, however, is done. While the French and German leaders still seem to be (barely) on speaking terms, the two countries' governing parties have the knives out. Apparently tired of German hectoring, the French have attacked German austerity policies and "egotistic intransigence" of the German Chancellor Angela Merkel.
Germans are now responding in kind. In their latest salvo, German parliamentarians railed against giving France extra time to meet its (3 percent of GDP) budget deficit target, assailing the E.U. Commission's decision as a "special bonus for the failed policies of President Francois Hollande."
The French round across the Rhine was almost instantaneous. Le Monde, arguably France's most respected newspaper, ran an editorial on May 4 praising the "End of the 'Stupid' Europe" – an obvious dig at austerity policies Germany imposed on heavily indebted euro area countries.
This latest French-German row is a worrying development. It is an example of fierce and destructive rivalries. And it also shows that old enmities die hard – even in places where they are supposed to have given way to relationships of friendship and cooperation.
So, if you are keeping the score, chalk one up for France, Italy, Spain and Portugal, assisted by a superb pass from the IMF and the U.S. Treasury, because they also led the fight for a better balance between growth and austerity in euro area's fiscal consolidation programs.
Remember, however, the game is far from over. There are big scuffles ahead for (a) the euro area banking union and (b) sovereignty transfers needed to strengthen the fiscal union. That will confront fundamentally different – and apparently unmovable - French and German views of what the euro area and the E.U. should look like.
(Read More: Resistance! Thousands of French Protest Austerity)
Rest assured though that the ECB will hold the fort. Its policies have helped to cut the cost of borrowing long-term money over the last 12 months between 1.3 percentage points (Spain) and 9.5 percentage points (Greece) for very depressed and indebted economies. The next big task is to repair the fragmentation of the euro area financial system, and to restore bank lending to businesses and households. Without that, the ECB's forecast of the recovering euro area economy later this year is very much in doubt.
Michael Ivanovitch is president of MSI Global, a New York-based economic research company. He also served as a senior economist at the OECD in Paris, international economist at the Federal Reserve Bank of New York and taught economics at Columbia.