Last week we wrote a lot about what's rapidly becoming the hottest question in Europe: Did the ECB pull off a backdoor bailout of the various governments by making it super-cheap for banks to borrow money, with which they can then turn around and buy sovereign debt at juicy yields?
Some people think a corner has turned. Economist Tyler Cowen wrote a post on this headlined: It is finally being recognized that the eurozone made a major policy breakthrough.
Felix Salmon on the other hand is not convinced, pointing out that bankers themselves say they have no plans to buy more European sovereign debt. And actually, most analysts on Wall Street who have commented don't buy it either.
But something shifted in the market over the past several days, as evidenced by the sharp plunge in yields on short-term sovereign debt.
Here's the Spanish 2-year bond.
So is the crisis solved or not?
The pessimists all make great points: This does nothing to address the core Eurozone problems (true), bankers say out loud that they won't be loading up on sovereign debt (true), there's still the problem with marking Eurozone sovereign debt to market, which creates an incentive to keep deleveraging (true), countries still can't print their own money (true), etc...
But here's the thing. Although it's a cliché, nobody is going to just ring a bell when the Eurozone crisis is over. Despite some people's hopes, Mario Draghi isn't going to come out and say: "We will not let Italian yields get above X.XX%, and eliminate their risk of default."
But nobody rang a bell at the end of the US crisis either. Eventually, in March 2009, the market had determined that between the Congress and the Fed, enough had been thrown at the problem, that there was no more downside, and that the whole thing wasn't going to come undone.
Because it's not like the worrying actually stopped in March 2009 by any means. For months people freaked out about the "next shoe to drop" — the trillions in commercial real estate losses that everyone expected to be subprime part II. There were all kinds of worries for months even as the market went about healing itself. In fact, the root causes of the crisis — falling housing and rising foreclosures — have actually gotten worse over the last 2.5 years!
So the bottom line is not that the European crisis is over, or that they've found the solution. But it's possible that they've turned a major corner, and that if you're waiting for someone to announce "all clear" or a solution (whatever that means), you're going to be disappointed.
This story originally appeared on Business Insider
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