Why didn't dangling such an enormous sum of money in front of bond investors work to calm their nerves? Rather than banishing the anxieties of investors, some experts argue that bailouts have served only to heighten investor worries.
The bailout structure "destabilizes the market," says Paul de Grauwe, professor of economics at the University of Leuven in Belgium.
Much of the problem lies with the conditions placed on the rescue funds to make them palatable to German taxpayers, experts say.
First, the rescues come very late in the day, with the government seeking help close to death's door. In the case of the €110 billion ($145 billion) Greek resucue, Athens could request aid only when it lost access to market funding—and had reached the point of no return. In Ireland's case, yields on the country's bonds rose to levels that would have made new debt financing unsustainable.
By the time the rescue is mounted, therefore, bond investors across the euro zone are spooked and looking out for the next domino whose debt dependence makes it vulnerable to higher market interest rates.
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