by Richard Barley
Wall Street Journal
July 28, 2011
The euphoria didn't last long. Less than a week after Europe's leaders announced measures aimed at stopping the risk of contagion, Italian 10-year bond yields are once again more than three percentage points above their German peers. Europe may yet run out of time to prevent a market panic.
The European Financial Stability Facility is a key plank in the euro zone's attempt to stop markets taking aim at Spain and Italy. Euro-zone leaders agreed to three key changes to make the EFSF more flexible: It will be able to provide precautionary assistance, without a full-blown intervention program run by the European Commission and International Monetary Fund; it will be able to help recapitalize banks including in countries without such programs; and it will be able to buy bonds in the secondary market.
These measures are useful, but would have been more helpful and effective a year ago, before the bailouts of Ireland and Portugal. And even now, making these changes will take time. A legal amendment to the EFSF's framework must be ratified by the 17 euro-area member states, a process that in some cases will require parliamentary votes. That could take months.