By Paul Taylor
PARIS, March 21 (Reuters) - Unlike Schubert's Unfinished Symphony, Europe's incomplete "comprehensive response" to the euro zone debt crisis is unlikely to be rated a masterpiece.
When European Union leaders complete a package deal this week to tighten fiscal discipline, improve economic policy coordination and strengthen their financial backstops, they will leave much unfinished business.
Finance ministers of the 17-nation currency area are likely to be back in crisis management mode within weeks to bail out Portugal, despite Lisbon's feverish efforts to avert a humiliating international rescue.
"The relative calm now prevailing in euro zone financial markets should not deceive us," said Marco Annunziata, chief economist at GE.
"Investors have given them the benefit of the doubt, but if EU leaders fail to deliver, tensions will surge anew, jeopardizing the recovery," he wrote in a syndicated column for the Eurointelligence economic website.
After a March 11 summit deal to increase the lending capacity of the euro zone rescue fund and allow it to buy sovereign bonds of distressed countries in the primary market under strict conditions, the consensus among bank economists was that leaders had done enough to stabilise the euro.
But Portugal is only one of a string of problems that they left unresolved and which may return to haunt them if financial markets turn sour.
Those issues include the long-term solvency of Greece and Ireland, the solvency and stress resistance of Europe's banking system, the implementation of tough austerity programmes and a widening growth gap between core Europe and the periphery.
"SAFE WATERS"?
There are also tricky detailed questions of who pays what and how to fund the euro zone's temporary and permanent rescue mechanisms, which could get snagged in domestic politics in Germany, Finland and the Netherlands.
Ireland's new government, elected on a wave of public anger over last year's EU/IMF bailout, will have to make some concessions to Germany and France on harmonising the corporate tax base in the euro zone if it wants a cut in the interest rate on its emergency loans.
Greece, which has stuck to a draconian austerity programme adopted last May, won a reduced interest rate and an extension in the maturities of its euro zone loans by promising to implement a 50 billion euro ($70.6 billion) privatisation programme.
With a lot of self-help from Madrid, EU leaders may have succeeded in erecting a firewall to prevent bond market contagion from spreading beyond Portugal to the far bigger economies of Spain and Italy.
"We are not yet fully in safe waters, but we have made headway," says an EU official at the heart of the fire fighting.
If the euro zone can quarantine just three smaller economies in intensive care, it will have bought time to repair its ailing banks and equip them to withstand a possible restructuring of Greek or Irish debt after 2013.
That is the task of Europe-wide stress tests launched last week. But EU countries are still haggling over the yardstick to apply for capital adequacy, and Germany, suspected of having some of the biggest problems in its regional Landesbanken, is resisting pressure to set aside funds now to recapitalise them.
While the European Central Bank has repeatedly warned that any sovereign default would have catastrophic consequences on the European financial system, EU leaders have stopped short of making a clear commitment to prevent one.
Indeed some German officials, speaking on condition of anonymity, share the view of most market analysts that Greece's debt burden is unsustainable in the long run and will have to be restructured -- just not now when German lenders are so weak.
This raises at least two major uncertainties -- a political and a financial one.
The political question is how long voters in Greece and Ireland will go on enduring grinding austerity and recession if they come to believe their suffering is being prolonged to spare German, French or British banks from taking losses.
At the same time, there is growing public fury in the euro zone's wealthy northern countries at being asked to put ever more money on the table to back the currency zone's weaklings.
The financial question is who will buy Greek or Irish bonds from 2013, when they are due to return to the market and those bonds carry an EU-imposed collective action clause making investors liable to share losses in any future default.
EU leaders have kicked those issues down the road by agreeing to a minimalist fix now. Chancellor Angela Merkel and President Nicolas Sarkozy may be calculating that they can avoid more unpalatable solutions until after their next elections.
But their "Unfinished Symphony" ensures that euro zone debt crisis will continue to fester for years to come.
(editing by Jane Baird)