[T]he crisis gripping the weaker governments of the euro zone showed no signs of abating. On Thursday, Spain was forced to offer significantly higher interest rates at a debt auction Thursday than it paid just a month ago. Bond markets fell across Europe. Earlier on Thursday, the head of the International Monetary Fund said he's worried European officials are "too much behind the curve" in comparison with the speed at which markets are moving, risking further contagion in the euro area.
Also Thursday, the European Central bank said it will nearly double its capital base—a move analysts see as a strong signal to government leaders that the central bank's loans to banks and its purchases of government bonds of the region's weakest economies carry a risk. There were no details about the size of the new fund
, which finance ministers said last month would be broadly in line with the EU's current temporary €750 billion ($992 billion) fund.
So far, the expected agreement on the new bailout plan, which includes provisions that would force holders of euro-zone government bonds to bear losses in some cases, has done little to reassure markets about Europe's resolve to salvage its common currency. In recent days, Luxembourg Prime Minister Jean-Claude Juncker and other leaders have proposed issuing common euro bonds as a way to alleviate the pressure on the currency area's weakest members. But the idea has been met with fierce resistance in Germany and other countries amid concerns that they could end up footing the bill for profligate neighbors.
The Continent's inability so far to halt the spread of the turmoil bodes ill for the coming year, when EU countries are expected to need to raise $2 trillion of debt. If Europe's governments fail to put their bickering aside, they risk triggering the unthinkable: the implosion of the euro.
For the past year, Europe has sought to manage the crisis with stopgap measures. Now, with Greece and Ireland under the virtual stewardship of the EU and the IMF and Portugal threatened with a similar fate, there is a growing recognition across Europe that policy makers are running out of options. Spain, a far larger economy than Ireland or Greece, is in jeopardy due in part to unknown losses in its banking system as its housing bubble deflates. Even Italy and Belgium, long used to managing high public debts, are coming under pressure in bond markets.