That was quick: Over the weekend, European leaders announced a $125 billion package to recapitalize Spain's banking system. At first, financial markets reacted positively, seemingly accepting official assurances that Europe had finally put a big enough plan in place to handle the financial challenge du jour -- and had done so in a timely manner.
But as investors asked about the details, their enthusiasm waned. Markets rendered a thoroughly negative verdict, with interest rates on Spain's 10-year bonds spiking above 6.8 percent, and Italy's surging as well. What went wrong?
Though large enough to plug the expected hole in Spanish balance sheets, the bailout -- underwritten by Germany and other solvent countries -- was delivered as a loan for which the Spanish government is ultimately responsible. Markets worry, reasonably, that Madrid is no more capable of paying off this obligation than its existing mountain of debt, given the recession plaguing its economy.
Things might have been different if the money had gone straight to the banks, but Berlin vetoed anything that looked like a direct bailout of another country's profligate bankers. Markets were also unhappy to learn that the creditors of the bank bailout might outrank all others in the hierarchy of Spanish obligations, which would be another reason for private investors to shun Spanish bonds.
These are matters of tactics. But the questions show the strategic weakness of Europe's approach to the debt crisis that has destabilized the continent and the world for more than 2 1/2 years.
Europe needs an approach to its problems that is as massive and confidence-inspiring as the Troubled Assets Relief Program and related measures were for the United States in the fall of 2008. And it still can't, or won't, devise one.
The Spanish bailout could plug the hole in that country's banks for a time. But it's not a permanent remedy for capital flight until depositors get the idea that their savings are guaranteed by some solvent entity. Nothing like that exists in Europe, and German taxpayers are not eager to underwrite one.
Germans are still hesitant to co-sign eurobonds for their debtor neighbors. They're reluctant to accept greater inflation within the German economy, to accommodate relaxation of the deflationary austerity that Germany is essentially imposing in return for bailouts.
Yet all of these elements may be necessary to stave off the collapse of the euro and the European economy. There is encouraging talk of a new Europe-wide banking supervision agency, but it won't be ready until next year at the earliest. There are questions about the role of London's financial center, which is part of the European Union but outside the euro.
Europe can probably limp along until Sunday's election in Greece, which may supply that country's long-awaited verdict on whether it wants to stay within the euro or take its chances on national default and a new national currency.
Perhaps it was too much to hope that Europe's paymasters in Berlin would play any more cards before they hear from Athens. But there isn't much time left.
-- Washington Post