In recent weeks, talk about a budding recovery in the eurozone has gained traction, with key indexes pointing to expansion in the core countries - data that many are citing as evidence that austerity is finally working. Money-market funds from the United States are returning, albeit cautiously, to resume funding of the European Union's bank debt. Even Goldman Sachs is now bullishly piling up into EU equities. But is a recovery really underway?

Cynics recall that a European recovery was supposed to take hold as early as the fourth quarter of 2010, and that every International Monetary Fund projection since then has predicted recovery "by the end of the year". Instead, GDP has collapsed, with the Spanish and Italian economies expected to contract by close to 2 percent this year. Portugal's economy is set to shrink by more than 2 percent, and Greece's output will fall by more than 4 percent.

Moreover, unemployment in the eurozone has skyrocketed to an average rate of roughly 12 percent, with more than 50 percent youth unemployment in the periphery countries implying a long-term loss of talent and erosion of the tax base. And, despite the spike in unemployment, productivity growth in the eurozone is decidedly negative.

More significant, over the last year, the public debt/GDP ratio rose by 7 percentage points in Italy, 11 in Ireland, and 15 in Portugal and Spain. If the sine qua non of recovery via austerity is the stabilization and reduction of debt, the cynics' case appears to have been made.

Against this background, the return of US investors to provide short-term dollar funding for EU bank debt smacks of a desperate hunt for yield that relies on European Central Bank President Mario Draghi's promise to do "whatever it takes" to save the euro. As for Goldman Sach's equity play, as bond-market guru Bill Blain put it, "the words 'buy cheap, sell a bit dearer on the up, and then dump and run' spring to mind".

In fact, any talk of recovery is premature until the losses incurred by austerity are recouped. As it stands, every country that has implemented an austerity program without imposing losses on private creditors has more debt now than when it started. For example, according to official estimates, Spain's public debt, which amounted to only about 36 percent of GDP when the crisis began, has almost tripled - and the actual figure may be much higher. More telling, the countries that cut expenditure the most experienced the largest bond-yield spikes and the most significant debt growth.