A weekend "get together" of European financial big shots resulted in an emergency $1-trillion rescue package to address the continent's debt problems. The European Central Bank also announced a planned purchase of euro-zone government bonds.
The markets responded with vigorous volatility. The euro first gained against the U.S. dollar, then gave it all back (and then some). Global stock indexes zoomed higher on Monday -- what a change from last week, when the Stoxx Europe 600 closed with an 8.7% loss.
Opinions regarding Europe's future remain divided. The CEO of the world's largest bond fund says that the crisis "...is on the verge of truly going global." (CNBC) By contrast, on Monday these remarks of a big hedge fund head were the first sentence in a Marketwatch story: "The sovereign debt crisis is 'manageable' and doesn't pose a risk to broader markets, said John Paulson."
This much is evident: The EU finance ministers, International Monetary Fund and central bankers have pushed virtually all of their chips to the center of the table -- "...a very desperate measure," in the words of a London-based forex strategist. (CNBC)
Who's right?
We at Elliott Wave International believe the only way the global credit bubble will be resolved is by "paying the piper" -- in other words, the "accounting books" must be completely balanced. This is quite different than IOUs on top of IOUs, which is essentially Europe's latest plan of attack.
"Practically speaking, the ECB now has a license to print more currency... We believe that making the debt mountain larger does not move the problem any closer to solution, but rather guarantees the eventual pain will be even greater when scores must be settled."
That's a quote from Elliott Wave International's May 10 European Short Term Update. The editor Chris Carolan puts Monday's European stock market rallies into perspective. You also get our views on what impact the ECB's "license to print" will have on the euro. Click here to read May 10 European Short Term Update risk-free.