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NOTHING fundamental has changed in Europe these past couple of months. Problems of high government indebtedness remain and record-high unemployment continues to grow, as most of the region’s peripheral nations are still in the throes of recession.

Yet the first weeks of 2013 have been filled with positive cheer over the region’s prospects. Bullish investors are of the view that all the negative news about the Old Continent has been priced in finally.

The man we have to thank for the easing tensions in Europe and in turn greater scrutiny of the South African economic story is the European Central Bank president, Mario Draghi, definitely the Old Continent’s "man of the year".

Through his pledge to do whatever it takes to save the euro, he has allayed fears of a possible collapse of the 13-year-old project now heading into its 14th.

Confirming that commitment was his statement that the bank would purchase the bonds of struggling nations on condition that they ask for aid, which comes with the added condition that they accede to the demands following.

For Spain, which at one point was on the brink of requesting a bail-out, the promise could not have come at a better time. The country’s borrowing costs, which had been close to unsustainable levels, have since eased on the cushion offered by the European Central Bank.

As long as yields remain at current levels, the Madrid-based government will avoid asking for a bail-out. The austerity the Spanish government has meted out to its people has caused much unhappiness among the public. If it had to undertake further steep cuts as part of bail-out conditions set by the European Central Bank, protests would only intensify.

Europe’s good news story has been propped up more than anything else by Draghi’s response to the crisis.

That’s not to say all is well. Social unrest about cuts to government spending is still set to continue and France, the region’s second-biggest economy, is still far off the reform path. It has been reported that the country, which has not balanced its books since the 1970s, pays more in interest on its national debt than it sets aside for education, which is not good for boosting French competitiveness.

Earlier this week, France’s labour minister described his country as "totally bankrupt". His comments have been repudiated by the finance minister.

So Europe still retains its many challenges, which may re-emerge at some point to grab the headlines, causing investors to dump equities and scurry into the relative safety offered by the dollar and to the horror of Japanese policy makers, the yen. Somewhere gold would benefit as well.

But until such a development occurs, the poor sentiment that has enveloped Europe will shift to another problematic country, our own South Africa, of which it is the biggest trading partner as a bloc.

South African headlines at the moment do not make for very good reading, if you are looking for a reason to stop you from reducing exposure to emerging markets. There’s no better place than South Africa to start with such a move right now.

Since August, we have provided for much interesting reading. This week, a British TV station broadcast as yet unseen footage of the Marikana massacre.

With time on their hands and more settled minds with regard to domestic problems, foreign investors can pay much closer attention to not only South African domestic problems but those of other emerging markets as well.

In such sensitive circumstances, it is probably best that the government and the ruling party adopt a more conciliatory tone when commenting on economic policy or unemployment.

The possibility of losing 14,000 jobs in the run-up to the next general election and a president who has not quite impressed in his first term, would unnerve any ruling party anywhere in the world. But instead of big and brash responses such as the "Anglo stole our money and listed in London Stock Exchange" soundbite, a much cooler tone is warranted.

Just like in Europe, where politicians and their squabbles have shaped markets for much of the past two years, South African politicians’ actions and words are more likely to affect sentiment.

So deep runs the negativity about the country that a London-based currency specialist earlier this week reported chatter among his peers of the rand heading towards R10/$.

If the rand starts weakening beyond the R10 mark, the Reserve Bank will have to intervene by hiking rates. Can this or any economy in the world afford such an action in this delicate phase of the global recovery?