As European governments pass key measures, the crisis only worsens.
The parliaments of Germany, Spain and Italy all voted Thursday on key measures designed to counter Europe's debt crisis, but there was little relief for the euro zone as markets pushed rates on Spanish bonds high into the bailout danger zone.
In Berlin, lawmakers, called back from their summer recess, approved Germany's contribution to the euro zone's planned 100 billion euro bailout for Spain's embattled banks.
The Italian parliament voted by 323 votes to 53 to approve the creation of the EU's 500 billion euro permanent bailout reserve fund. The vote allays fears that party politics in Rome could delay the European Stability Mechanism becoming operational.
Spain's conservative government used its majority in parliament to pass the latest package of cuts, to shave 65 billion euros off the budget deficit by 2015, despite a mounting wave of street protests against the austerity measures.
“There is no money in the public coffers. There’s no money to pay for public services,” Budget minister Cristobal Montoro told the parliament as he defended the cuts.
Regardless of the parliamentary vote, markets punished Spain, driving the interest Madrid has to pay on its benchmark 10-year bonds over the symbolic 7 percent level.
That was the rate that triggered the governments of Greece, Ireland and Portugal to turn to the International Monetary Fund and European Union for bailouts, handing over significant control over their economies in return.
European politicians insist Spain is not going the same way.
German Finance Minister Wolfgang Schaeuble said Spain was the victim of "excessive nervousness in financial markets" and heaped praise upon the Madrid government's deficit cutting efforts as he sought to persuade German lawmakers to approve the bailout.
"Even the appearance that Spain will not be able to recapitalize the banks on its own can lead to contagion, and then it becomes a problem of financial stability for the whole euro zone," Schauble told the Bundestag.
In the end, the bill passed easily with 473 votes for, 97 against and 13 abstentions. However 22 legislators from Chancellor Angela Merkel's ruling center-right coalition voted against, meaning that she had to rely on support from the opposition Social Democrats to get the plan approved.
Their stand underscores the deep opposition in Germany to bailing out poorer euro zone partners, but the number of rebel lawmakers was four less than when the parliament approved the EU bailout fund in June. The cross-party support for the bill shows most mainstream German politicians are prepared to back Merkel on measures to keep the euro zone afloat.
A bigger problem for Europe's leaders is the markets' apparent lack of faith in the measures agreed at the last European summit in late June, which brought only a temporary easing of the pressure on Spain, and to a lesser extent Italy.
"The biggest issue for me is the long-term issue. Markets, citizens and everybody else need to know where we are going," said Fabian Zuleeg, chief economist at the European Policy Center, a think tank in Brussels. "Piecemeal solutions don't work...we are now at a point where we need to have an overall approach, we need a step change in the way Europe approaches this."
The European Union is working on a series of initiatives to bond euro zone economies closer together through common budget rules or a closer banking union, but many economists say they need to move faster and in a more clearly defined direction in order to reassure the markets.
"Since the crisis has reached Spain and nearing Italy, the risk of a catastrophic crisis has increased, since the “fall” of a large country can lead to meltdown," warned Zsolt Darvas, an economist at the Brussels think tank Bruegel. "The euro area needs an effective governance framework, which cannot be achieved without a much stronger political integration," he said in a blog published Thursday.
Leaders appeared to have made progress to that end at their June 29 summit, which announced a series of measures to help out Spain, make it easier to support other countries in trouble, and draw up longer-term measures.
However just hours after the summit, it became clear that various EU countries had different interpretations of the agreement.
Finland and the Netherlands denied they had signed up to plans to ease bailouts to indebted nations. Germany insisted a decision for bailout loans to go directly to Spanish banks, without adding to the country's mounting government debt, will only happen when a new European banking system is put in place — unlikely for several months at least.
Euro zone finance ministers are expected to approve a first slice of 30 billion euros in aid to the Spanish banks during a video-conference on Friday.
However, hopes raised in June that such moves would ease pressure from the markets as Europeans head to beaches for their summer vacations in August are looking very premature.