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The Greek Debt Swap Is Just One More Step, Not the Solution

It's good news that the Greek debt swap appears to have worked from a technical standpoint, but the debt reduction is hardly the end of the troubles for Greece.

It's a very sad day when a European nation is in such trouble that it chooses not to pay its bills. But it's been clear for some time that this is where things were going.

So we should be glad the Greeks at least managed to pull this off.

However, Greece is still in extremely bad shape, even with these lower debt levels.

The hope of the rest of the eurozone is that we will soon be past the point where further problems in Greece can spill over to the rest of Europe. But it will be some time yet before that can happen.

Severe unrest in Greece could still spook the leaders of other troubled countries into holding off on some necessary reforms.

If such unrest led the Greeks to abandon the euro as their currency, in a desperate throw of the dice, it would sharply increase market fears that Portugal might follow.

The eurozone's Greek problem is centered on Portugal, the second-most troubled country in the currency zone.

It is not out of the question that Portugal's debts, like Greece's, might prove too burdensome to handle without a debt restructuring that would burn their bondholders.

I think this is a low probability, but it is definitely conceivable.

That is why Europe's leaders are doing everything they can to persuade the markets that Greece is truly an exception, including muttered talk of Greece being a "failed state".

They are also talking up the strength of Portugal's institutions and the political will being shown by the Portuguese leaders, with the support of their people.

Let us hope that they are right about Portugal and that the other positive steps being taken at the national and European levels continue.

We still have a big stake in Europe's success, especially since failure could lead to a serious European recession that triggers at least a mild U.S. downturn.