Portugal doesn't mean euro zone crisis... yet

The euro zone crisis is not back -- at least not yet. Yesterday's sharp move in global markets following concerns about Portugal's Banco Espirito Santo had as much to do with market nerves after a long spell of repressed volatility as it did with the state of the bank's balance sheet.

Despite the current calm, everyone knows that volatility will return one day, and no one wants to be caught on the back foot when it does arrive. So the initial response is to hit the "sell" button and then ask questions.

Mario Proenca | Bloomberg | Getty Images

Beyond this context, there is a lack of certainty in the market about which way bond yields for the so-called "peripheral" euro zone countries are heading in the near term—and what exactly the risks associated with holding them really are.

Riding the yield compression, in the case of the Portuguese 10-year bond from over 7 percent to under 3.5 percent, was a one-way-bet no-brainer once the impact of European Central Bank (ECB) President Mario Draghi's July 2012 speech became crystal clear.

But now yields have started to tick up again, so the advantages of holding in anticipation of further declines become less obvious, while the risks continue to mount.

In many ways, the situation is analogous to yen depreciation and the Bank of Japan (BoJ). The first leg was easy, as the yen fell into the 100 to 105 to USD range. But now it is stuck there, and the debate has become a "will she, won't she" on further BoJ easing.

Read MorePortugal's BES hits back–should we blame the parent?

It is clear the recent ECB decision to launch Targeted Long-Term Refinancing Operations (TLTROs) has disappointed. It may do a little to help ease access to credit in the south in the mid-term, but it will hardly be effective in combating deflation.

In particular, we may need to wait more than six months to see any net liquidity impact, since the September and December allocations coincide with earlier LTRO repayments, leaving what Pantheon Macroeconimcs' Claus Vistesen calls "a potentially worrying 'air-pocket' over the next six months where the central bank's balance sheet continues to contract, making the verbal commitment to easing increasingly difficult to rely on as a sole back-stop".

Will we really have to wait till 2015 to see any significant step to stop the deflation rot?

Read MoreHere's what's happening in Portugal

Digging deeper, and beyond fears about what the coming ECB bank stress tests may turn up, the simple passage of time in itself could complicate things.

The recent bout of May industrial output numbers has had everyone busily revising down their second-quarter growth forecasts, and it is obvious that even if outright deflation is avoided, inflation will be very, very low. Which means nominal gross domestic product (GDP) over the next couple of years may barely increase, sending sovereign debt levels onwards and upwards.

All official sector projections have these levels peaking either this year or next, but now these estimates will need to be revisited.

Naturally the "Mario Draghi ultimately has my back" feeling will prevail, but with markets continuing to finance debt levels that many recognize are unsustainable (beyond Greece especially Portugal and Italy), concerns will rise that the size of the pill may become just too big for the ECB to comfortably swallow, leaving the specter of private sector involvement to rear its ugly head.

So, yet again, we find our way back to Japan. As long as Abenomics is perceived to work, Draghi's promise holds. But the day doubts enter about the ability of the BoJ to generate inflation and handle all that government debt, that day the euro crisis will be well and truly back. What happened yesterday was just an early warning of mines lying on the road ahead.

Edward High is a macro-economist, who specializes in growth and productivity theory, demographic processes and their impact on macro performance, and the underlying dynamics of migration flows. Follow him at @edward_hugh