The European Central Bank’s new sovereign debt backstop facility, the OMT, marks the end of the acute phase of the developed world’s public debt crisis. But the chronic phase entails new and potentially longer lasting consequences.

Welcome to the chronic phase of the public debt crisis

In the aftermath of financial crises over the past century, the real value of public debt exploded higher by 86% on average relative to pre-crisis levels. If the IMF’s projections are correct, public debt levels in the G20 economies will peak in 2014 at 122% of GDP, a mere 53% higher than 2007’s pre-crisis levels.

The situation looked far worse a year ago when participants named public debt crises as the ignominious victor in the Global Agenda Council’s annual survey of major concerns. This year, public debt crises are only the 10th biggest concern in the survey. Instead, fears are more targeted: replacing general public debt issues at the top of the crisis heap are the potentially fatal problems of the Eurozone.

The latest survey is right to hone in on the Eurozone as a latent risk to global financial stability. Rules aimed at ensuring fiscal prudence were flouted by periphery and core countries alike during the first decade of monetary union. Worse, there was no account taken of private sector debt levels that might impose an eventual burden on taxpayers. Without recourse to fiscal transfers from the centre, the periphery economies found themselves by 2009 in a situation little different to the problems besetting emerging markets’ fixed exchange rate regimes through much of the 1990s.

The ECB’s launch of a new Outright Monetary Transactions scheme goes miles toward creating a circuit breaker for individual countries in the monetary union. The risk of a systemic crisis in the Eurozone, which then spreads to the rest of the world, has been markedly reduced. While graduating from the acute to the chronic is hardly a cause for celebration, the worse news is that the Eurozone remains the most likely source of a new global shock. Onus is on European leaders to agree to a concrete vision for fiscal, banking and indeed political union at a point in history when the reasons for staying married are more out of fear than enthusiasm. The system has stabilized, but there is an unclaimed elephant in the room: the legacy debt overhang in the periphery.

For the periphery Eurozone countries, this time is not different. This time is worse. Public debt levels in Greece, Ireland, Portugal and Spain have risen by 70-376%. The average is far worse than the conclusions stemming from Rogoff & Reinhart’s landmark book on the aftermath of financial crises.

Inequality, youth unemployment and systemic risks within the bloc make the Eurozone the ultimate microcosm for the collateral damage stemming from the global financial crisis. The residual dangers of this chronic phase, most notably the tendency toward political extremism, are arguably greater than in the acute phase of the crisis, as a sense of common cause gives way to mutual recrimination for what went wrong and who to blame.

In this new phase, the Eurozone is hardly unique.