Much like the giant financial bailout announcement in the United States during 2008, the rescue package announced by Europe appears to have eased some fears of a market collapse. Facing increasing criticism for their slow and weak response to the creeping fear of sovereign defaults amongst the PIIGS (Portugal, Italy, Ireland, Greece and Spain) nations, Europe along with the International Monetary Fund cobbled together a trillion-dollar package in defence of the euro.

Markets rallied all around the world with major exchanges in the US rising some four percent. However, many concerns remain. This is not a liquidity issue. This is a solvency issue. A large swath of the Eurozone is patently insolvent. More debt does not solve a problem of too much debt.

The package does nothing to lower the overall debt burden of the countries involved, it merely shifts the burden amongst different creditors. The European Central Bank's (ECB) bond purchase programme is simply a bailout for the private banking system that transfers risk to the ECB.

The end game is not so pretty no matter what shade of lipstick is applied. We are probably headed for a strategic default of sorts for some of the countries like Greece. It may be shocking to some to note that Spain has been in default more than Argentina while Greece over the past 200 years has been in default almost half of the time. Defaults and restructuring in the Eurozone have been pervasive and not a new phenomenon. Much of the problem is cultural in nature.

The Eurozone must overcome a couple of issues in its attempt to correct this sovereign debt overhang. First it must overcome immense political controversy and social discontent. It is unclear whether governments can come to agreement and enact some very draconian austerity programmes. In many cases making the hard yet right decisions to become more fiscally prudent is political suicide.

In Germany, for example, the media is noting that instead of giving tax breaks to its own citizens, Merkel's government is helping to fund a rescue package for Greece and the peripheral countries. It will probably be difficult for Spain to sell an austerity programme in a society where 20 percent of the population is unemployed (45 percent if you are in the 18 to 25 year age group).

The recent Greek riots only amplify how the country has a very counterproductive entitlement attitude. Many Greeks believe it is their right to retire at 55 (50 if you are a woman) with a gold-plated pension while about one quarter of all taxes owed in Greece are not paid. These are large social/cultural issues to overcome.

Secondly, if they do manage to enact some forms of fiscal austerity it will need to be very oppressive to drive down deficit levels to the Maastricht criteria of three percent. According to David Rosenberg of Gluskin Sheff, fiscal cuts to attain this level will shave four percentage points annually from Ireland's nominal GDP over the next three years, 3.5 percentage points from Greece, 2.8 ppts from Spain, 2.2 ppts from Portugal and 0.8 ppts from Italy. In essence these cuts will slice about one percent GDP growth from Europe as a whole each year for the next three years. With fiscal constraint, it will be next to impossible for Europe to grow its way out of its debt problems.

The ramifications of this situation are many. First we are likely to see much slower growth in Europe versus the rest of the world. In fact it is likely to be the slowest growing region amongst the developed world for years. This increases the risk of a double-dip recession and will pressure the profitability of domestic European companies.

It would also not be surprising to see continued weakness in the euro. In the medium-term there is potential for the common currency to return to its corresponding OECD purchasing power parity measure and 10-year moving average just below 1.20.

A move to parity over the longer term should not be ruled out as fiscal issues are systematic and pervasive and the fall will actually help boost foreign demand for European goods and services. The recent rescue package may seem impressive but remember: if you put lipstick on a pig, it's still a pig.