ANALYSIS:An EU deal has failed to save Rome and Madrid and they may soon be unable to borrow

THE EURO area crisis has reached end game. The deal reached in Brussels just 12 days ago was never enough to deal with a loss of investor confidence in Italy and Spain, but there was hope that it could at least calm matters. That hope is now gone.

Both countries’ bond yields have surpassed the highs that they reached in the fortnight prior to the emergency summit – highs which were themselves one of the main reasons for the convening of that meeting.

Although much energy went into the summit’s package, it was expended in vain. The additional measures agreed at the meeting have already been shown to be inadequate.

It is now very difficult to see Italy and Spain escaping the vortex of the spiralling loss of confidence that sucked in Ireland, Greece and Portugal.

The point at which these two giant euro area economies are unable to borrow is fast approaching. Yesterday morning it looked to be at hand.

In the first half hour of trading, their bond yields sky-rocketed.

If they had stayed on that trajectory over the course of the day, another euro area emergency meeting might have been in the offing by last night. Such a meeting now looks inevitable, and it is likely to happen sooner rather than later.

What can be done to pull the situation back from the brink?

Although the prime ministers in Rome and Madrid are both weakened men in weak positions, their administrations have shown that they can take bold measures when needed.

Yesterday’s announcements from both capitals – of a ratcheting up of the political and policy response – show just how serious the situation has become.

But the Spanish and Italian slide has gathered such momentum that it is not at all certain any domestic policy initiative in either country can halt it. At a time of such fragility, many of those who hold the sovereign debt of states on the slide become gripped by the fear of being left with bonds that may ultimately be subject to the sort of treatment Greek bonds have been subject to. Or worse.

This raises the prospect that nobody will show up the next time those governments go to the market to sell newly issued bonds. If that happens, they won’t be able to repay maturing bonds, of which there are tens of billions of euro worth due in the coming weeks.

As the debt crisis goes critical, it is worth reflecting on how big is the change taking place. Just three years ago, people in the rich world – Europe and the US – enjoyed August free of any care that the wealthiest states in human history would go bust.

This August, there are legitimate fears that many governments in the rich world will not be able to fund themselves, leading to outcomes of potentially Armageddon-like proportions which could alter peoples lives more dramatically than any single event in many decades.

How the world has changed in 36 months.