Eurozone policymakers have had a good few weeks for once. European Central Bank (ECB) president Mario Draghi impressed markets with his bond-buying programme. Germany's constitutional court approved the eurozone's permanent rescue fund. And Dutch voters turned away from eurosceptic parties in their general election.
But it is dawning on initially euphoric investors that while the "tail-risk of sovereign defaults in Italy and Spain" should now be "off the table", as Ambrose Evans-Pritchard puts it in The Daily Telegraph, the ECB plan is a palliative rather than a cure. A series of problems, both old and new, remain. That's why the yield on Spanish ten-year government debt has begun to climb again as prices have fallen.
The ECB's bond-buying programme can only be activated if Spain asks for help. So far it hasn't, because the prime minister, Mariano Rajoy, "continues to pretend" it doesn't need it, says The Economist. He isn't fooling anyone. The "economic mess" is getting worse and requires "an emergency infusion".
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Rajoy also fears the political cost of asking for help as the bond-buying comes with strict conditions. Rajoy will presumably be persuaded to sign up rather than risk Spanish yields hurtling back to unsustainable levels that would threaten a default and a meltdown.
But once Spain, or another state, signs up,there's a further potential problem. How will the ECB ensure that a country lives up to the conditions attached to the bond-buying? In theory, the ECB will stop its bond-buying if a country backslides. But that would threaten a messy default and the end of the euro, so it's unlikely. "There surely must be an incentive for electorates and their elected representatives to call Mr Draghi's bluff," says Wolfgang Munchau in the Financial Times.
That suggests the politics of euro rescue will become increasingly toxic, with north pitted against south, as Mario Monti, Italy's prime minister, worries. The north is likely to become resentful of southern countries trying to water down their rescue terms, and become loath to send more money to the periphery, especially as the deepening continental downturn leaves it with less money.
Spain and Italy are "already in debt-deflation spirals" yet are set to face "Carthaginian terms" for ECB bond-buying, says Evans-Pritchard in The Daily Telegraph. Europe's "political minefield", which could ultimately also cause a euro break-up, "lies ahead".
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