Stating the obvious, this is the European Bazooka and it is having the desired affect.
CDS and bond yields for Greece, Portugal, Spain, and Italy have all dropped significantly. Equities have rallied across the world. The Euro has rallied over 4% on the news. Last week, I kept asking where the ECB is and doing a poor imitation of Jim Cramer’s “They Have No Idea” rant with Jim Cramer on CNBC during the Thursday stock meltdown. I wrote,“Given that the ECB didn’t move today on rates, I believe they could be waiting for this vote to take action in the markets.”
This is exactly what happened.
Here are the salient remaining areas of major concern:
- The Euro area needs to amend/change their structure to enforce their rules of 3% deficit to GDP.
- We need to learn what are the rules/austerity measures for funding from the European stabilization package.
- We need to learn if Greece and Portugal are going to follow these rules.
- We need to learn how the IMF is going to fund their portion of the plan. Last time I checked, I thought they only had $268 billion in the fund.
- We need to learn if this is going to be the defining moment for the European Union in its path towards federalism. Will Germany get veto power?
In the meantime, here’s a point to remember: the passage of TARP didn’t stop the markets from declining. It was only after it was implemented and the US Federal Reserve engaged in quantitative easing did the markets finally stabilize. Fortunately, the starting point in the global economy today is vastly better than it was in 2007.
This should mean that the European debt package and ECB liquidity provision will have a better chance to stabilize the crisis sooner than the 6 months it took from September 2008 to the trough in March of 2009.
Andrew B. BuschDirector, Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch.