Markets pass judgment on the eurozone

I said that the Americans would be warning against complacency here at Los Cabos. Since then the financial markets have made their job a lot easier.

There's not much room for complacency when the Spanish government's long term cost of borrowing is edging toward 7.3% and it has just paid more than 5% to borrow for one year. A few months ago they were paying less than 3% for one year money.

Italian borrowing costs have also jumped this week, to well over 6%.

German officials think the world is too easily spooked by rising bond yields.

When it comes to the cost of government borrowing, they say there's nothing magical - or deadly - about interest rates that begin with a six, or even a seven.

Remember, Spain and Italy are only paying those rates on new debt - and they don't pay it at all unless they have to raise money from the markets at the time when the yields have spiked.

Unfortunately for Spain, the government is indeed planning to raise more cash - in the form of longer- term bonds - on Thursday. Investors and others will be watching nervously to see how that plays out.

Germany's basic point still stands. Italy and Spain could carry on paying these high rates on new debt for quite a while without getting into serious trouble. "Sticker shock" at the 6% or 7% price tag shouldn't spook governments into promising fancy schemes at summits that they can't actually deliver (for more on this line of argument, see Friday's blog on Chancellor Merkel).

But, and this is a big but, that argument assumes that investors will continue to be willing to buy Spanish, or Italian, debt, as long as the interest rate is high enough. That is not necessarily true.

The spike in yields isn't only telling us that their debt is now perceived to be more risky. It could also be telling us that a rising number of investors do not want to buy it at any price. That really is something worth losing sleep about.