How much of a guarantee? That's the debate. It could be anywhere from, say 25 percent to 100 percent of the losses.
The big advantage: it would leverage the EFSF and create a more serious backstop. So if there was a guarantee of, say, 50 percent, the capacity of the EFSF fund would go from 440 billion euros to 880 billion euros if all the money is committed to a guarantee.
The downside: due to the leverage, risk to the EFSF goes up. If the world goes to hell again, the EFSF is on the hook — and will have to go back to its 17-nation constituency with cup in hand.
The hard-liners will strenuously object. No matter: it is all-in time in Europe. Concepts thought unthinkable a couple months ago, like a 50 percent haircut on Greek debt, or large-scale bank recapitalization, are now mainstream thinking in Europe.
EU bureaucrats may still be too slow in their thinking for the trading community, but they have come a long way in a short period of time.
I know we're all obsessed with Europe, but earnings may be just as important.
We have had only a sampling so far. It has been very mixed:
Alcoa a miss and cautious,
JPMorgan poor investment banking results and very cautious,
But these are the stars in their sector. In the next two weeks, other big names will be reporting: IBM, Intel, Xilinx, American Express. "These will tell all," one trader wrote this morning.
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