As I have pointed out on this blog, the southern European countries need private investors to finance their debts. Specifically, countries running trade and budget deficits need foreign investors to finance these deficits because there is not enough domestic money.
All of the schemes, plans and promises emanating from central bankers, politicians and eurosummits are bids to get private foreign investors back into the sovereign debt market.
Why would they? Euro institutions have de facto seniority, and we all saw how private investors got treated during the Greek bailouts. Furthermore, the failing countries have yet to take significant steps to improve their abilities to pay (i.e. slash entitlement programs, raise retirement ages and reform their internal markets).
Once the markets lose confidence in an entity, it’s gone. Does anyone know of an entity that lost access to the credit markets and then returned without declaring bankruptcy or enduring some other type of restructuring?