Busch: Europe Shivers While US Shakes

As the markets return to full strength, there are slew of negative European stories all conspiring to drive the euro down against most major currencies. The biggest story appears to be the Italian bond scandal in which authorities could be sitting on €35 billion of liabilities.

Oddly enough, it gets back to credit ratings and allowing Italian cities to invest pooled money for a sinking fund into triple-A rated debt. According the FT's article, one of the cities, Milan, has said it is considering legal action against a group of lenders – Deutsche Bank, JP Morgan Chase , UBS and Dublin-based Depfa, part of Germany's Hypo Real Estate.

Next up in the bad news category, Germany is considering taxing the "rich" to pay for a €40 billion stimulus plan. According to MNI, Germany's SPD party has proposed raising income tax on high earners to fund a second, $40bn economic stimulus package, the FTD reports. This highlights the problems that German Chancellor Angela Merkel is running into with her plan. In stark juxtaposition to the US, the SPD has said it is opposed to any tax cuts.

If it's cold, there's always a problem with Russian gas supplies. Currently, there is a rift between Ukraine and Russia over Ukraine siphoning off natural gas from the pipeline that feeds Eastern and Western Europe. The Czech Republic, Turkey, Poland, Hungary, Romania and Bulgaria are experiencing drops in supply of between 5 and 30 per cent. Russian gas monopoly Gazprom cut off gas supplies to Ukraine on January 1 in a dispute over debts and pricing that shows no sign of ending according to Reuters. Happy New Year! Unfortunately, this cut-off impacts everyone else down the line. Since Europe gets one fifth of its nat gas from Russia, this prompted European Union officials to set up emergency meetings to ensure gas supplies.

Lastly with the Bank of England meeting this week and the ECB next week, there is chatter from analysts that these central banks should stop cutting rates and focus on quantitative easing. The shift to QE back at the beginning of December in the United States ignited a massive sell-off in the US dollar. Let's try not to read too much into the early movements of 2009, but this question is a major one for the currency markets and ultimately for the equity markets. Will other banks follow the lead of the Federal Reserve?

As we await a press conference from President-elect Obama, the currency markets have taken a break from selling euros and US equities. Liquidity still seems very low. We appear to be in a period of time where we have come back from the abyss and have no where to go but up—a bit. Economic data should start to improve until the end of January, but for now the risk is for better than expected releases.

• New Bank Bailout Not in Cards: UK's Brown

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Andrew B. Busch isGlobal FX Strategist atBMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor.He can be reached here .

Note: An earlier version of this blog said the European Central Bank's monetary policy meeting was scheduled for this week. The ECB will meet on Jan. 15.