The end is nigh? Maybe don’t speak so soon.

Everyone is excessively familiar with the sovereign debt crisis afflicting the Eurozone. In some way or another, it has no doubt affected everyone in Europe. Ireland as well as Spain have exited their bailout programs and interest rates have gone down significantly. Indeed, in some economies we are beginning to see timid recovery.

But this is not because the end of the crisis is about to come, but rather because the economy has hit rock bottom. Across the Eurozone, the crisis is still very real. Mario Draghi recently insinuated that Portugal would have to ask for a second bailout and as for what regards Greece, talk about a third bailout still very much alive. Budget cuts and supply-side reforms continue to advance in a stealthy and unrelenting crusade against the welfare state.

Burning Up? Is the Euro still in danger?

The next few years will still be difficult and right-wing governments from London to Lisbon to Athens will continue to poison the economy with austerity in attempts to slay the great big monster of debt that most European countries have accumulated over the years. The recessions of the past 5 years have not only magnified debt-to-GDP ratios. They’ve kept governments from cashing in as much from tax as they wanted, rendering tax hikes and budget cuts practically useless. In truth, the Austerity Years have seen debt expanding at faster rates than throughout much of modern history.

It’s undeniable that debt has become unsustainable. In my home country of Portugal, debt servicing costs more than the entire budget for education or healthcare. As bad as cutting these two areas is (and extensive cuts have already been made), there is simply not enough there to cut. With GDPs having shrunk so much and general tax levels at historical highs, it is unclear how growth or higher taxes can make up the difference. The only option left is to renegotiate debt. In fact, Portugal’s primary budget surplus means that the only thing in the way of it paying back its debt is the interest it pays on it. With a combination of restructuring and relief, debt can be brought back to manageable levels.

Debts the problem right there.

Debt renegotiations are not that uncommon. Both Latin America and Eastern Europe enjoyed significant debt restructuring in the 1980s and 1990s and have since been able to use that breathing space to modernize their economies and generate growth. Debt renegotiation aren’t immoral either. When German debt post-WW1 and WW2 was acknowledged as too big an obstacle for its economic, major debt relief and restructuring ensued. With economic prospects comparatively bleak, taking a page from the history books and deal realistically with Europe’s debt legacy.

Interest rates may have fallen, but the end to the Eurozone crisis not close. Europe still needs to deal with its debt. Failure to deal with the debt legacy can only cripple a European Union that is by all accounts severely under the weather. For that reason, to advocate debt renegotiation is today a position of fiscal responsibility and realism.