From Yanis Varoufakis – Why Italy? Why Spain? And why the EFSF’s size does not matter:
Italy and Spain are tumbling because one problematic structure (the European Financial Stability Fund, the EFSF) has been conjured up in order to prop up another problematic structure (the eurozone). The result is that both structures are reaching the end of their tether. Enlarging the newer of the two problematic structures (the EFSF) will not make a difference as long it remains… problematic. Italy and Spain, in this sense, are mere casualties of Europe’s determination to retain the EFSF’s structure as is.
Contagion to the eurozone’s core was inevitable because of a potently toxic ingredient deeply buried inside the EFSF’s funding base; not because of its (admittedly puny) size. While all this has been said before (see here and here), the powers-that-be did not listen, the Crisis predictably intensified, and the time has come to say the same things again, perhaps with a little more analysis added for good measure. [Readers averse to a little algebra and geometry are advised to glance at the cobweb-like picture and jump to the conclusion…]