Bail-out fund stands by for first big test

But Simon Tilford, chief economist at the London-based Centre for European Reform, said the shifting sentiment signaled by Ms Merkel's stance has overwhelmed the temporary calm. "The fact that [the EFSF] is there means they're in a better position than they were in late April or early May [at the height of concerns over Greece], but it doesn't change anything fundamental," Mr Tilford said. "The markets know that Ireland can resort to the EFSF, but it hasn't prevented the dramatic widening of spreads … The way it's structured has been done to limit, as far as possible, the exposure of the countries underwriting it ... Because of that, the capital is going to be much more expensive than it otherwise could be, and it makes it more likely countries resorting to it will in the end have to restructure or default in any case."