Think about there is a company that is heavily indebted it had more liabilities to it's income. A prudent measure for this business is the company goes bankrupt, restructures it's debt and tries to survive, albeit scaled down. It takes the pain treats it's staff well and negotiates in a respectful manner wage cuts and agreements, to hopefully reemerge again and expand and become profitable. What it doesn't do or shouldn't do is take out more loans to survive, this will cause the company to continually cut back staff and create a environment of uncertainty, which in turn the company eventually goes into default in a spectacular fashion and implodes.
The same is happening with the nearly 1 Trillion $US bailout of Europe, what essentially is going to happen is indebted countries that are unable to finance their debt obligations, will be given new loans, thus making them more indebted (great plan huh?). Even if the interest rate is low (on borrowed funds from the the EU/IMF/ECB), the countries (PIIGS) still have to pay back the money loaned to them by other EU countries and the IMF/ECB. So like Greece there will be brutal austerity programs unleashed onto the people, a continued indebted presence in the EU, in which goverment cuts and spending will be so harsh that the average person will feel no benefit from this so called 'bailout'.
In the meantime as indebted countries struggle to pay back loans, the bond yields should remain high whilst the foolish ECB tries to print money, there will be an interest rate 'playoff' between the ECB and bond vigilantes (as yields will still remain high on EU debt). But the ultimately the whole EU region will be effected as output slows and inflation climbs. Should eventually lead into an inflationary type depression.
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