Hope springs eternal. That's how to best describe the situation in Central Europe and the Baltic Republics this year following a crash in 2008.

For Austria, the implications for a swift recovery in the region are vital to the long-term viability of this nation's regional influence and its anchor as an economic hub for Eastern European trade. In 2008, that important link almost collapsed as the financial system was literally on the brink.

This is a quick trip to Vienna. I arrived Monday afternoon and will depart later today to London. I'm in town meeting our Sovereign Society banking contact, Valartis Private Bank Austria, a division of the Geneva-based Valartis Group.

I've visited Austria about 20 times since 1998 and remain fascinated by this country's utter beauty and its rich cultural history. I highly recommend visiting Vienna – and the summer is the best time to stroll its magnificent sights.

For me, there's nothing like Viennese coffee. It's the best I've ever had. The Viennese love their coffee houses and you'll find one on almost every block.

The economy, however, is recovering after falling sharply in late 2008.

Austrian credit spreads, or the difference between German bunds and Austrian government debt, has narrowed considerably since March. Credit spreads across the euro-zone zoomed higher last fall as several weaker EU members were at risk of seeing their credit ratings downgraded.

Investors had priced in a growing possibility that Austria might default on its debt as measured by credit default swaps; Austria is the largest lender in the region, especially to nearby Hungary, whose economy remains highly vulnerable and requires ongoing International Monetary Fund (IMF) assistance.

The Italians and Germans are also big lenders to the region while Sweden is the biggest creditor to the Baltic Republics.

For now, calm has been restored to Eastern Europe and Austria. Stock markets across the region have surged since March posting their biggest annual gains since 1993 driving asset values sharply higher everywhere; real estate prices, however, remain expensive in core cities and "bubbles" are still pretty prevalent in some markets, including Vienna.

Austria is unlikely to default but might see its debt downgraded if economic conditions in nearby Hungary don't improve soon. Austria is leveraged to Hungary's economy.

Other countries at risk of a credit downgrade or possible default include Ireland, the United Kingdom, Italy, Portugal and, of course, Greece.

Greece is the most vulnerable to an EMU (European Monetary Union) exit or sharp devaluation – similar to what occurred in September 1992 to the euro's predecessor, the ERM, or European Exchange Rate Mechanism, that governed the synthetic ECU, or European Currency Unit. In September 1992, Italy and the United Kingdom suffered a humiliating devaluation and exited the ERM.

If there's one lesson I've learned over the last two years amid historical volatility is that the global exchange rate mechanism is largely dysfunctional. Currencies just about everywhere are amassing record levels of debt, including those in Europe. This greatly explains why gold is trading at $1,166 an ounce.

At some point, I believe, the euro-zone will suffer a major currency dislocation – a Black Swan event that barely anyone is anticipating or discounting.

It seems almost impossible that Europe will escape the forces of credit deflation with its weakest members intact. I have serious doubts that countries like Italy and Greece belong in monetary union in the first place. Both nations have debt-to-GDP ratios that exceed 125% of their respective economies and have violated the Maastricht Treaty governing budget deficit limits; even the Germans have violated the 3% budget deficit threshold after posting their biggest deficits since WW II.

The odds favour Greece will tilt the EUR into some sort of currency chaos. Banks in Greece are desperate for capital and continue to draw on the ECB's funding mechanism.

The EUR is overvalued. It has no business trading at current levels and is a poor proxy for protecting our purchasing power since 2005 when gold began to rise vis-à-vis the EUR. I imagine this trend will continue until the ECB aggressively raises interest rates – and that won't happen for a while.