The euphoria over Europe’s latest rescue package faded quickly. Now the question is whether European leaders will ever agree on measures needed to end the sovereign debt crisis, and whether they will get another chance.
After an initial bounce, markets demonstrated a lack of confidence in Europe’s resolve to protect solvent governments from the financial malaise afflicting its weakest member nations. At a bond auction Oct. 28, the euro area’s third- largest economy, Italy, had to pay investors a yield of 4.93 percent -- a euro-era high -- to take the risk of lending it 3 billion euros ($1.8 trillion) for three years.
At least European leaders got the pieces right this time. They have recognized that a credible plan must include big writedowns of sovereign debt, a recapitalization of the banking system and guarantees for newly issued government bonds -- and that all these elements are inextricably linked.