Difficult days ahead for Europe despite Greek vote
European leaders face difficult decisions in the days ahead on managing the outcome of the Greek election, upholding their credibility on financial discipline to avoid stoking contagion, and making convincing progress towards a grand plan for deeper integration.
"We are now in a defining moment for European integration," European Commission chief Jose Manuel Barroso warned last week.
"Without confidence (on markets) in the irreversibility of economic and monetary union, our prospects are limited."
All attempts so far to end the eurozone debt crisis have failed, analysts say, forcing EU leaders towards a new and uncertain dimension of deeper integration which holds both promises and dangers.
The victory in Sunday's Greek parliamentary election of parties willing to implement the bailout deal provided some much needed relief on the risk of Greece exiting the euro.
But with the Greeks likely to push for relaxation of the bailout terms, too much compromise from the eurozone risks its credibility and sparking contagion by encouraging other demands for leniency on painful reforms.
Moreover high bond yields show markets are skeptical Italy will avoid a euro-busting bailout, showing European leaders have a huge task cut out for them when they meet next week.
Their efforts so far haven't stopped the crisis.
Eleventh hour bailouts of Greece, Portugal, Ireland and now Spanish banks, all born of panic on the financial markets, in each instance only bought time, before uncertainty quickly returned.
The rescue of Spain's banks, which was supposed to ease borrowing costs to levels Madrid can afford, almost immediately fell flat and, analysts say, may prove to be the last straw for business as usual in the eurozone.
The bailout "is just going to delay the inevitable", said Ben Taylor, a sales trader at CMC Markets, as adding the cost of rescue loans to Spain's banks onto the country's debt will only precipitate a full Spanish bailout.
The prospect of bailing out the eurozone's fourth largest country may finally push Europe across the Rubicon.
A "patchwork of sticking plasters can only buy a little more time before Europe's policymakers are forced into some form of closer fiscal and political union in order to save the euro", said Capital Economics analyst Julian Jessop.
Perhaps strikingly amid the current crisis, it is more integration that is being openly called for by key European leaders ahead of an EU summit on June 28-29 at which they will be under intense pressure to sketch out a path to lasting solution.
Their diagnosis of the eurozone's ills is insufficient integration, that the debt crisis is a result of sharing a currency without sufficient controls on the fiscal policy of member counties.
But their ideas on treatment vary considerably.
German Chancellor Angela Merkel has advocated that Europeans "work on the causes and not on the symptoms" of the crisis.
Merkel said deeper union is key, but pushes "political union first and foremost", pegging it to her cherished fiscal pact, that holds EU nations to tough budget commitments through the threat of penalties.
"That means we must, step by step, cede responsibilities to Europe," Merkel told ARD public television earlier this month.
But "step by step" takes time, which countries under market pressure such as Spain and Italy do not have the luxury of affording.
At Forex.com in London research director Kathleen Brooks said, "As we have seen in the past, the problem with the sovereign debt crisis is that it is systemic and as such France, Italy, etc are all at risk of contagion. Thus, the Spanish bailout may be no panacea to this crisis."
That is why their calls for integration have held a different tenor, with the word "political" notably absent, and with pleas for measures to quickly relieve the pain on their finances.
Creating "eurobonds" under which eurozone nations would be jointly responsible for each other's debt and creating a eurozone-wide bank deposit guarantee system are two proposals which would help reduce pressure on countries.
"We are already in another stage," of the eurozone crisis, said France's President Francois Hollande, who backs swift moves towards eurobonds, a banking union and a 120 billion euro boost in spending.
Spanish Prime Minister Rajoy, whose conservative government has pushed through German-inspired austerity without yet reaping any rewards, has called for the European Central Bank to step in to calm markets.
But the ECB, backed by Germany, has intervened only reluctantly and in a limited manner to calm the bond markets lest it end up de facto underwriting the governments.
Despite German reluctance, Unicredit economist Erik F. Nielsen said the June summit will "likely set in motion an integration process that will lead to a eurozone banking union and ultimately partial sharing of sovereign debt."
The risk, he added, was that the "inevitable" process leading to an internally consistent union would pose "new challenges" for those choosing to remaining outside.
In the Financial Times, commentator Philip Stephens said Britain could be the biggest victim of more union on the continent that could turn it into a "Greater Guernsey", an oversized offshore haven for big banking.
For Jessop, the real question is whether the leaders advance integration soon enough "to prevent some of the weaker members from leaving" the European project put on the rails over half a century ago.
The economist said he doubted integration will happen soon enough for the likes of Greece and Spain, but that a union of the core countries will eventually emerge further down the road.