For months the top leaders of the European Union resisted the idea of a bailout for Greece, wringing their hands over the estimated $61 billion cost. While the jawboning continued, the infection took hold.
Bond vigilantes drove the Greeks’ borrowing costs into the double digits. Investors, fearing a contagion in Europe’s southern tier, dumped the stocks and bonds of Portugal and Spain. As it spread, markets started to pummel European banks and insurers for their exposure to what could prove to be one of the worst sovereign debt disasters ever.
A bank crisis and a debt crisis rolled into one—the medical bills for this extreme case will make Europe long for the modest $61 billion of just a few weeks past.