EUROPE'S sovereign debt crisis is back:

Less than a month after bailing out Ireland, and after a holiday lull in the markets that may have looked mistakenly like calming, the European Union is again struggling to persuade investors that it has the cash and the will to address the root cause of its travails: a growing debt burden that is strangling governments and their banks.

On Friday, the yield on Portuguese 10-year bonds hit a recent high of 7.1 percent, the cost of insuring the debt of banks in Italy and Spain rose sharply, and the euro hit a three-month low against the dollar.

Driving the recent market weakness was a report by the European Commission that proposed that holders of senior bank debt be required to take a loss when a bank fails.

European authorities took pains to say that the rules would not apply to the more than 1 trillion euros ($1.3 trillion) in current bank and sovereign debt in the 17-member euro zone.

But investors were not biting. They chose instead to interpret the report as a signal that they would be forced to take losses on their obligations.

It was hard to blame them.

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