The long term refinancing operation introduced to fix Europe's financial crisis has a way to go before success can be declared, suggests Jim Cielinski, head of Fixed Income at Threadneedle Investments.

The introduction of LTRO in Europe has had a significant effect on markets. Concerns about liquidity with regard to the banking sector have been substantially alleviated, with a second round of LTRO funding to follow this February. The LTRO has boosted confidence and allowed funding markets to reopen, leading to a significant amount of debt issuance by both banks and sovereigns in the first weeks of 2012. The LTRO has dramatically reduced the tail risk of bank failure and is thus a significant positive step. However, it does not resolve the many problems of the European system.

• The ballooning of the ECB's balance sheet is a reflection of how bad the situation is - the banking sector has become very dependent on the ECB and will stay this way for a long time.
• Europe's fundamental problem is a lack of growth and competitiveness - this provision of liquidity is likely to exacerbate the problem. If banks lend more to governments through bond purchases, they are likely to withdraw further from lending to the economy, undermining recovery. This is classic crowding-out.
• Increased austerity measures will continue to provide a very significant headwind to growth and, until we see fundamental restructuring in Europe and the accompanying supply side reforms, the current environment of heightened volatility and continual flirting with recession are here to stay for a very long time.
• Excessive government debt remains a significant and long-lasting issue that can only be resolved through growth, inflation or money printing.

There is a long way to go.