Despite the unprecedented “bailout packages” for Greece, Ireland, and Portugal, and more recently Spain, and the EU’s €750 billion ($1 trillion) war chest to quell the Eurozone’s sovereign-debt crisis, the currency union’s woes still remain intractable. Greece continues to teeter on the brink of default and an ignominious exit from the eurozone, and the borrowing cost remains volatile in the eurozone’s peripheral countries, Portugal, Ireland, Italy, Greece, and Spain (referred to uncharitably as the PIIGS). This reflects the market’s deep concern about the sustainability of the PIIGS’s public debts and fiscal policies, these countries’ ability to stay within the eurozone, and the credibility of the eurozone’s various crisis-resolution mechanisms.

The lingering fear is the contagion overwhelming the much larger economies like Spain and Italy with virulent spillovers into the much healthier economies in the seventeen-country, single-currency area, notably Germany and France. Markets know that if the volatility of Italian and Spanish bond yields are not stabilized it may become cost-prohibitive to roll over their already existing heavy debts at market rates. This could potentially force Rome and Madrid to seek bailouts that the eurozone cannot afford or sustain (Figures. 4.1, 4.2, and 4.3).