LONDON A trillion-dollar financial safety net and plans for government spending cuts have dramatically reduced the risk that Greece, Portugal and Spain will run into funding problems over the next 18 months.
But during that period, they will have to meet or at least come close to meeting targets they have announced for cutting their budget deficits. If economic or political obstacles prevent them from doing so, debt crises could flare up again.
"It wouldn't surprise me if governments didn't meet the targets that they've laid out, either because the economy disappointed and revenues undershot or the expenditure objectives just proved to be too difficult," said Ken Wattret, analyst at BNP Paribas.
"Can they achieve their targets? Well, time will tell. It's going to be very difficult," he said, adding that he thought the three countries' best chance would be to earn market goodwill by cutting deficits as much as possible over the next two years.
Wattret said the safety net and the countries' austerity packages had bought perhaps 18 months to two years of reassurance that they would have access to finance.
Until this week, markets worried that Greece, Portugal and Spain might not be able to get over a string of "funding humps" -- periods of heavy debt redemptions -- in the next few months.
The humps include an 8.5 billion euro bond redemption by Greece on May 19, a 4.6 billion euro redemption by Portugal on May 20, and 16.2 billion euros of redemptions by Spain in July.
Maturities for the sovereign debt of both Portugal and Spain are uncomfortably bunched in the short term, with about 25 percent of Portugal's debt and 22 percent of Spain's debt due to mature in the next 12 months, though Greece's debt is more evenly spread into the future.
International bailouts seem to have removed the immediate danger. Greece remains effectively shut out of the debt market, but a 110 billion euro bailout it obtained early this month in exchange for austerity measures is expected to cover all its sovereign funding needs for over two years.
Portugal and Spain remain able to borrow from the market and if they lose access, they can draw on a $1 trillion package of emergency loans announced by the European Union on Monday.
This prospect, combined with austerity steps announced by Madrid and Lisbon this week, has pushed their funding costs far enough back down that they stand a good chance of not having to apply for emergency aid.
Portugal's two-year government bond yield has plunged from 6.86 percent last Friday to 2.68 percent, a level at which analysts believe Lisbon can afford to continue borrowing over the long term.
Last week, the two-year yield was above Portugal's 10-year yield, a sign that investors worried about a looming liquidity crunch. The two-year yield is now a much more healthy 2 percentage points below the 10-year.
But the Portuguese two-year yield remains well above levels of around 1.3 percent seen before the debt crisis began building in late 2009.
This suggests markets still see a significant level of risk, and that Portugal and Spain may have to continue assigning short-term maturities to large portions of their bond sales, slowing efforts to spread debt farther into the future.
One risk is the limited, conditional nature of the international bailouts. The bulk of the $1 trillion safety net has been committed for only three years.
If the end of that period starts to approach and indebted countries are not succeeding in reforming their finances, markets will start to worry that the countries may become unable to obtain emergency aid when they need it.
The international bailouts were agreed after difficult talks between EU governments, many of whose taxpayers oppose the idea of taking on the debts of other countries. There is no guarantee that the EU will extend its safety net farther into the future.
Politics within the indebted states are another area of risk. Although Portugal's main opposition party has said it will support the government's austerity plan, there are doubts over Spanish Prime Minister Jose Louis Rodriguez Zapatero's ability to face down public sector unions, which have already blocked a move to raise the retirement age.
In Greece, strikes and violent demonstrations suggest Prime Minister George Papandreou might still decide eventually to restructure sovereign debt, in order to spread some of the pain beyond the Greek population to foreign creditors.
"Talk of such a move has been pushed out to the future," rather than being eradicated, said Nick Stamenkovic, a bond strategist at RIA Capital Markets.
A Reuters poll of economists this week found them estimating a 10 percent chance of a Greek debt restructuring in the next 12 months, down from 20 percent in an April poll.
If politicians remain committed to cutting budget deficits, spending cuts could conceivably worsen debt problems by depressing economic growth and hurting tax revenues.
"The risk I see is that these austerity measures will weigh on economic activity - which was seen as sluggish anyway - thus making fiscal consolidation more difficult," said Diego Iscaro, an economist at IHS Global Insight, after Portugal announced austerity measures on Thursday.
Sluggish economic growth could also worsen debt problems in the private sector, forcing governments to back away from austerity. Analysts point to high debt levels in Portugal's private sector and the weakness of Spain's regional savings banks, which are under threat from a property market crash.
This week's Reuters poll found economists estimating a one-in-five chance of Portugal needing emergency funds in the next year and a one-in-ten chance for Spain.
"Additional fiscal consolidation is likely to become necessary in the next few years and we reckon the country risk premium is likely to remain elevated," said Giada Giani at Citi.
(Additional reporting by William James; Editing by Andrew Torchia)