Newly nominated Italian Prime Minister Mario Monti speaks to the press after being appointed on Nov. 13, 2011, at the presidential palace in Rome.
NEW YORK (CNNMoney) -- Europe's debt crisis is far from over.
The appointment of 'technocrats' (read political outsiders) to replace ineffective prime ministers in Greece and Italy may have helped ease the political turmoil in those countries.
But the underlying economic and financial problems remain fundamentally unchanged.
In addition, the plan to build a financial firewall around vulnerable euro area nations appears to have stalled, with few indications that non-European investors are interested in taking part.
The lack of progress has increased pressure on the European Central Bank to intervene more aggressively in the credit markets. The bank has bought billions of euros worth of government bonds since August, although ECB officials say the bank doesn't want to become the lender of last resort for governments.
German Chancellor Angela Merkel called for closer economic integration to stabilize Europe's common currency, warning that the European Union faces perhaps its toughest challenge since the Second World War.
"If the euro fails, then Europe will fail," she said Monday.
Still, the regime-change in Italy and Greece is a step in the right direction.
Mario Monti, an economics professor and former European Union commissioner, will attempt to do what former Italian Prime Minister Silvio Berlusconi could not. That is, follow through on promises to get the nation's fiscal house in order and make the Italian economy more competitive.
Last week, Lucas Papademos was named interim prime minister of Greece, days before George Papandreou resigned. A former vice president of the ECB, the newly anointed Papademos has pledged to make the controversial reforms necessary to secure badly-needed bailout money for Greece.
"The next step is to see whether sizeable reform packages can go through, and what action the ECB will take if markets continue to pressure Italian bond yields," said Jason Pride, director of investment strategy at wealth management firm Glenmede, which has $20 billion in assets under management.
Investors have been spooked by Italy's rising borrowing costs, which topped 7% last week. Yields on Italian 10-year bonds started this week around 6.7%, and the government sold €3 billion of 5-year bonds at interest rates not seen since 1997.
The Italian government's package of fiscal reforms are designed to chip away at the country's massive debt load, which is equal to about 120% of the nation's gross economic output.
Italy is a major concern because, with about €1.9 trillion in debts, it is too expensive to bail out. At the same time, as the euro area's third-largest economy after Germany and France, Italy is too big to fail.
Meanwhile, the plan to leverage a government-backed rescue fund, called the European Financial Stability Facility, remains a work in progress.
EU leaders have proposed using the €440 billion fund, which has about half of its resources already committed to existing bailouts, to set up an investment vehicle to attract capital from outside Europe.
But the terms of that plan, which officials say could take the fund's resources up to €1 trillion, are still being determined. Klaus Regling, the official in charge of the EFSF, has suggested that potential investors have been turned off by the recent political uncertainty.
"It is unclear that the facility will ever have enough funds to provide a bailout for Italy, which we estimate would need to amount to around €700 billion," said Jennifer McKeown, a senior European economist at Capital Economics.
The EFSF is seen as the only replacement for the ECB as a lender of last resort in the sovereign debt market.
Given the uncertainty surrounding the fund, many investors have been looking to the ECB to increase its bond buying program.
But recent comments from central bankers suggest the ECB remains opposed to expanding its balance sheet with more risky sovereign debt. The latest came on Monday, when German central bank president Jens Weidman rejected the idea of an unlimited commitment to buy government bonds in an interview with the Financial Times.
Despite strong internal opposition, some investors are betting the ECB will eventually cave to demands from the market and outside political powers.
"The current size of the EFSF remains too small to support Italy, so the onus will be on the ECB to take up the strain," said Nick Stamenkovic, market strategist at Ria Capital in Edinburgh. "Ultimately, we expect a change of policy from the ECB to ensure the survival of the euro."
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