Europe's Firewall Has Some Loose Bricks

As Europe veers from one crisis to another, financial authorities led by European Central Bank President Mario Draghi have reassured the rest of the world that they have the firepower in place to keep the euro intact. Bond traders aren’t buying it.

Investors have shrugged off the Continent’s latest efforts to increase the bailout capacity of various lending programs, including new International Monetary Fund commitments, to €859 billion ($1.09 trillion). Already, we’re seeing diminishing returns to Europe’s piecemeal bailouts. On June 9, Spain received a €100 billion loan courtesy of the European Financial Stability Facility, a bailout fund created in 2010. By June 18, yields on the country’s 10- year government bonds were up more than one percentage point to 7.2 percent, the highest ever for Spain since it joined the euro. Italian borrowing costs have also surged since March, crossing 6 percent on June 13.