With a robust rescue package, European policymakers appear to have stemmed a financial crisis that threatened global markets and the economic recovery. But that doesn't mean Europe is out of the woods yet.

The euro crisis induced some panic around the world. The LIBOR rate （London InterBank Offered Rate，简称LIBOR, 伦敦同业拆放利率）is rising  become more worried, and the stocks are declining and  plunging due to the same fear. This is a normal reaction in my view. It will take a bit time to factor into Greek factors so as to bottom out. I expect more volatility in the market, nevertheless.

John He, former faculty of Princeton University and stock guru in US, mailed to me his views recently that he is not going to see a bear market like the one experienced in 2008. People are panic indeed, and when dust settles, they will look around and then see nothing unusual is happening around them, such as like layoffs, or store closures,or like. They will return to their normal psyche. It would be interesting to  study such phenomenon from scholarly point of view.

I would suggest to all that we all take a deep breath and good vacation before the next move to jump into the torrential water at oversold price.

Euro will devalue somewhat more (due to expectation of printing of euro), and European economic growth will be affected somewhat in the next couple of years due to PIIGS government budget cuts and raised tax. I do not know how exactly it will affect US economy, probably not that much directly unless some banks hold too much euro un-hedged. Indeed, US export will decline somewhat due to dollar strength (rendering US products less competitive) and less economic growth in Europe (less export to Europe). If so, US will have less obstacle to print more dollars to help with the situation.

If US unemployment rate stays high, then Fed will maintain its loose monetary policy (super low interest rate). Most people expected interest rate raise in late 2010 or early 2011, but if unemployment will go up due to European crisis, then the raise will not  happen as soon. That would be good for a lot of stocks in long term.

I am more encouraged than ever before the Europeans' decisive action. Still, I expect a combination of fiscal austerity and relatively tight monetary policy to keep European growth slow, which could alter the shape of the global recovery. Among the possible losers: commodity producers and U.S. exporters. Among the possible winners: global consumers outside of the Eurozone, such as China.

Let's quickly diagnosis how Greece and Europe got into this financial crisis. The crisis gained steam because sovereign debt holders began to worry about whether they would get repaid. Fear started to cascade, starting with Greece. Then Portugal started selling off, then Spain, then Italy. Many analysts thought, for example, that Spain had a credible fiscal package, but Spanish bonds were selling off dramatically as zero-risk-tolerant investors exited. Meanwhile, banks which hold a large amount of Eurozone sovereign debt began to run into trouble getting short-term money, and so the bank system started to freeze up. There were echoes of what happened after Lehman Brothers collapsed.

The 870 billion-plus Euro package, produced jointly by the European Union (EU), the European Central Bank (ECB), and the International Monetary Fund (IMF), sent a strong signal, diminishing sovereign debt concerns. Now it seems that those risk-averse investors and the banks that held large positions in Eurozone sovereign debt have regained some level of comfort. The worst case scenario of Greece's sovereign difficulties cascading out of control seems to have been put into a very low probability corner. This rescue package was big, and while it lacked some clarity, big is better than too small or too late.

Going forward, I think that the central bank is likely to be much more reticent and perhaps tighter than what we saw out of the Federal Reserve and the Bank of England following the crisis of  2008. If that's the case, the downward pressure on Eurozone economies from relatively tight monetary policy while fiscal tightening is beginning is going to raise the risk of deflation there.

Europe is likely to face slower growth. I think it's going to be very hard to get robust growth with the fiscal packages that some of these economies are adopting. While the current deficits are certainly unsustainable, the reality is that the proactive tightening that this crisis has forced on economies such as Spain and Portugal will slow the pace of the Eurozone recovery.

If Greece is just the first domino to fall is questionable. I've heard many people say that Greece is just a precursor to what will happen in the periphery countries in Europe, and it will then spread to the U.K. and the U.S. I would argue we face a very different situation. Greece was an extremely profligate economy before this crisis and its problems weren't accurately reflected in official data. Its civil service labor force is huge. Its pension liabilities are massive. Unit labor costs have been skyrocketing, while productivity has been plummeting, and the competitiveness of the Greek economy is very poor.

In contrast, the U.S. has an extremely flexible labor market, very high productivity, and unit labor costs are falling at the fastest rate in recorded history. While the size of government is growing, it is nothing on the order of the magnitude of Greece. Finally, U.S. industry is very competitive globally. So our economies look very different.

If there is a similarity, it is that much of Europe and the U.S. is running very large fiscal deficits. The big question going forward is how U.S. policymakers address the structural side of the U.S. deficit. If they are not proactive, then Greece does provide a warning: government spending does not translate into a robust and dynamic economy. With the positive economic attributes we see in the U.S. — the flexible labor market, high productivity, etc. — give America the ability to grow out of the recession faster than Europe.

As for what is behind the growth in the next five to ten years, I would view that demographics and productivity are the key determinants of long-term economic growth in any economy. But the big question for the U.S., the U.K., the Eurozone, and the Japanese economy is what portions of their deficits are structural and what portions are cyclical. So far, I believe much of the U.S. deficit is cyclical and a result of the deepest recession since the Great Depression. However, the risk is that we could increasingly turn cyclical deficits into structural ones through policy decisions.

In my opinion, the decisions policymakers make over the next five to ten years are going to be huge in determining which countries end up winners and losers. In the end, deficits are a function of receipts and expenditures; let's hope we learn the lessons of Greece and turn the worst to the best.