So what’s behind this new bout of optimism about Europe? After all, we have had many Europe-inspired rallies in the past that were based on little more than temporary fixes and band-aid solutions. Is it any different this time around?
The newest European plan may in the end come to nothing, but it does have a number of useful components that have to form part of a viable solution. This unofficial plan calls for increasing the size of the Euro-zone rescue fund, known as the European Financial Stability Facility or EFSF, from the current level of €440 billion to perhaps €2 trillion to €3 trillion.
The idea is that increasing the size and scope of this fund will give the European authorities enough firepower to not only ring-fence the vulnerable countries, but also recapitalize the banking system. In a way, this fund will be analogous to the TARP fund that helped stabilize the U.S. financial system.
None of this is official yet, and a lot of institutional and logistical details need to be spelled out. Given the need for legislative approvals in individual member countries, the final adoption of such a plan will be time-consuming and messy. But notwithstanding such uncertainties, the articulation of such a plan will go some way in addressing some of the existential questions surrounding the currency union. Needless to say that taking such unsettling questions off the table will be a very desirable outcome.
In corporate news, Walgreens (WAG) came out with better-than-expected results on the back of solid comp sales momentum. Goldman Sachs (GS) is reportedly contemplating significant cost-cutting measures, including major lay-offs. We have earnings reports from Jabil Circuit (JBL) and Paychex (PAYX) after the close today.
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