Maybe Europe's Economy Isn't So Broken After All

The kickoff to a crucial earnings season may be center stage for American investors. But an equally important process is playing out on the other side of the Atlantic, with less fanfare. The prospects for European sovereign debt, which plagued markets through the first half of the year, are on the mend amid growing signs that an economic rebound may be taking shape in Europe as well.

On Tuesday, the Greek government sold $2.1 billion worth of six-month bills at rates below the 5% rate available to it through emergency European Union measures. The move follows reports that the Chinese central bank provided a vote of confidence for the country when it purchased $505 million of Spanish 10-year bonds in a well-received auction last week through its State Administration and Foreign Exchange arm.

Even Spain Has Hopeful Signs

The signs of stabilization come just months after many investors had speculated about an outright breakup of the euro. But the currency's decline has helped make European exports more competitive, especially for industrial powerhouses like Germany. Exports there soared 9.2% in May, the biggest gains in 10 years, the German Federal Statistics Office reported last week. Unemployment dropped to 7.5%, after falling for 12 months in a row.

The high-end German manufacturing sector posted an especially strong performance. On Tuesday, automaker BMW issued a bullish report. Like rival Mercedes maker Daimler Chrysler, BMW is seeing surging demand in fast-growing markets like China.

Europe's troubled Southern economies, of course, aren't faring nearly as well as Germany. And the difference in fortunes could add further stress to already tense relations. But even Spain, with a jobless rate around 20% -- Europe's highest -- saw a sharp decline in unemployment in June.

Still, thawing credit conditions remain the prerequisite for further gains. And as signs mount that the panic that gripped investors at the start of the year may be receding, a further pickup may be in store. For more, see video below.