Even by recent tumultuous standards, yesterday's €9bn bond auction in Italy had an unusual amount riding on it. After the December summit that eurozone leaders claim offers a resolution to the crisis, a failed bond sale in Italy would have sent panic through world stock markets once again, precipitating catastrophic and potentially insoluble funding problems. Instead, and to the surprise of most commentators, there was a strong enough appetite for Rome's bonds to push their interest rate down by half and even ease all-important yields.
Investors' apparent endorsement of Italy's new Prime Minister and his emergency austerity package will come as a relief not only to Mario Monti himself, or even just to nervous eurozone governments desperate that the latest summit agreement is shown to count for something in the markets. The successful Italian auction also offers a welcome breathing space for Mario Draghi, the head of the European Central Bank.
Ahead of yesterday's bond sale, the outlook seemed pretty grim. Alas, even now, the contradictions at the heart of the crisis remain unresolved, and the symptoms of sickness in the banking sector are not abating. There are two pertinent numbers here. One is the €489bn-worth of ECB loans tendered on rock-bottom terms to more than 500 European banks last week. The other is the almost-equivalent €452bn that was parked in the ECB's overnight facility by banks on Tuesday. Taken together, they tell a tale rather different from the Italian auction, and one that must not be ignored.
The ECB's massive injection of liquidity into the Continent's banks is most interesting for what it says about what the central bank is willing to do. Most economists agree that the ECB could save the eurozone by setting itself up as a "lender of last resort", guaranteeing all eurozone government debt, without limit. The difficulty is one of basic, almost ideological, differences in the conceptions of the ECB held by eurozone states. While the French might support such a change, the inflation-phobic Germans will not countenance it.
Mr Draghi is treading a careful line between the two positions. To the relief of Berlin, he swiftly retracted comments about the possibility of a new "fiscal compact" when they were widely interpreted as a hint of a policy change. But his efforts to boost banks' liquidity fuelled hopes that this would both mitigate Europe's looming credit crunch and also trickle through to boost bond sales.
It is here that the record ECB overnight lending levels come in. Typically, banks use the facility sparingly, because it offers such a low rate of interest. That Tuesday night saw the highest level of deposits since June 2010 is the most compelling evidence yet that European banks' wariness of lending to each other has not been improved by their extra liquidity. That the total almost directly correlates with last week's surge of loans from the ECB only underlines the problem.
Italy's bond sale is still a cause for optimism – tangible evidence of improved confidence both in the Italian government and in broader efforts to secure the eurozone, including by Mr Draghi. But with another €8.5bn of Italian debt to be financed today, and an alarming $350bn more in the next 12 months, the race is far from run. Mr Draghi has been given more time. But he has so far focused on the symptom not the cause, and that will have to change.