By Mohamed A. El-Erian

It has been two years since Greece narrowly avoided an exit from the euro area that could have been disastrous for the country and extremely challenging for Europe and the global economy. Although the country has made a lot of progress since then, markets are far too sanguine about its rehabilitation.

On June 17, 2012 — exactly two years ago — when Greeks went to the polls in parliamentary elections seen as a referendum on the government's austerity measures, investors were right to be worried about the country's economic future. An exit from the single currency, with all the financial chaos that could entail, was a clear and present danger.

Now, the seemingly-tentative coalition that emerged from those elections has steered Greece to relative safety. But the attendant sharp drop in the government's borrowing costs, and investors' hearty appetite for new issues of Greek sovereign and bank bonds, overstate the domestic improvements.

The rally in Greek assets has been turbocharged by a global quest for yield amid western central banks' extraordinary efforts to keep interest rates low. To hold on to foreign capital and reduce the chances of further instability, Greece must do more to improve its economic health.

The government of Prime Minister Antonis Samaras has achieved a lot over the past two years. It has narrowed the budget deficit, improved tax administration, reduced spending inefficiencies and increased the transparency and accountability of government operations. The country has also reduced its trade deficit and the risks associated with what was a heavily over-extended and under-capitalized domestic banking system.

That said, not all is well. After enduring a sharp collapse in economic activity, Greece is still far from the rebound in growth that it desperately needs.

At 27 percent, the unemployment rate remains alarmingly high, threatening the very fabric of society. The 58 percent rate of youth joblessness is particularly worrisome: At the initial and early stages of a working career, the longer the period of unemployment, the greater the risk of becoming unemployable, raising the frightening possibility of a “lost generation.”

On the financial front, Greece’s debt burden remains too heavy at more than 170 percent of annual economic output. Such a large "debt overhang" tends to discourage the influx of new productive capital.

Meanwhile, the composition of the country's creditors has shifted markedly toward foreign public lenders, including the European Central Bank and the International Monetary Fund, whose claims are senior to those of other creditors.

While this makes Greece less subject to the whims of the market, it might also limit the country's ability to negotiate additional debt restructurings.

The combination of insufficient growth, high unemployment, social strains and excessive indebtedness has weakened political cohesion. Ominously, Greece saw a rise in support for anti-European Union candidates in the latest round of European Parliament elections — so much so that there is more talk about the possibility of early elections for the national parliament.

For all Greece's achievements, it's important to recognize how much more remains to be done.