So is this the "Big Bazooka" than many have said that Europe needs to convince sceptical markets that the eurozone crisis can be controlled and conquered?
According to media reports, European officials have agreed on how to leverage a key rescue fund to provide more fire power in dealing with the region’s debt crisis.
And the International Monetary Fund could act as a financial backstop to wobbling Italy and perhaps Spain.
But the IMF denied that it was in talks to help Italy, although a team from the Fund will be in Rome shortly for talks.
As well, some reports claimed the markets also rose solidly because of record post Thanksgiving sales on Friday and Saturday, although that would have been the thing furthest from minds of investors in Asia who have been more worried about Europe and the health of the Chinese economy.
Certainly the news from Europe was singled out in regional commentaries and grabbed by fretting investors yesterday, especially in Asia.
Markets rose by around 1% to 3% in the region, and in Europe the were more bullish, with indices up from 2.8% to more than 5% in Paris and over 4% in Milan and Frankfurt.
Wall Street rose by more than 2%, gold and silver were higher, oil and copper as well and the US dollar fell.
The Australian market will open up around 20-30 points higher, according to the share price index futures contract and the Aussie dollar rose past 98 US cents.
That was despite ratings group, Moody’s warning that all credit ratings in the eurozone would be at risk if nothing was done to resolve the crisis (see below).
And the Organisation for Economic Co-operation and Development forecasting a sharp slowing in euro growth to just 0.2% in 2012, from 1.6% this year.
It warned that most of Europe and the UK will be close to if not in recession in the first half of next year.
It also said growth in other developed economies would slow next year as well, adding pressure everywhere on spending and debt levels.
But the OECD forecast higher growth for Australia.
But we have heard this all this confident talk of a ‘deal’ for the eurozone before, only to see the grand plans collapse or just fade away.
The latest story goes something like this:
Finance ministers from the eurozone are due to meet tonight, our time, and they are expected to sign off on rules for borrowing against the European Financial Stability Facility (EFSF), as well as guidelines for intervening in the eurozone bond markets and providing credit lines to governments.
Under the scheme set to be discussed, the euro area’s EFSF would have to "insure" bonds of troubled countries by covering the first 30% of any unpaid debts.
To offer this guarantee, the European bail-out fund would have to be able to raise 1.4 trillion euros, three times the nominal amount of the fund, which has been reduced by the amounts committed to Greece, Portugal and Ireland.
There is no certainty the Fund could be boosted.
It remains unclear how this money could be raised, especially in the current febrile market conditions, although the EFSF may itself sell bonds to international investors.
But it had trouble selling bonds three months ago and its bonds are trading at a higher yield than Germany’s, even though they have the same AAA rating.
So that raises the question, should we believe this story if we don’t know where the money is coming from?
The reports on the EFSF deal came amid reports that the IMF may offer €400 billion to €600 billion (over $A800 billion) in aid to Italy, according to Italy’s La Stampa newspaper.
As well, there are reports that Spain will be offered a standby credit line big enough to convince markets not to try and drive the country into a bailout, should Italy be backstopped.
The need for confidence and some market stability was underlined by the news (reported yesterday) that Belgium, Italy, Spain and France will try to raise more than 19 billion euros (or over $US26 billion), as well as another €9 billion to €9.5 billion in bills, according to estimates from RBC Capital Markets.
So news that the Euro Group of finance ministers and the IMF were moving towards concrete, confidence building conditions, should be enough to steady frayed investor nerves that last week pushed Italian bond yields above 8% in the secondary market and German yields well above 2% after that auction of 10 year bonds failed.
Belgium’s downgrade by Standard & Poor’s seems to have brought the country’s brawling politicians to their senses with a budget for 2012 close to agreement and a possible new government after more than 530 days without one.
The news saw Asian stock markets — the first major bourses to trade following the news — surge on hopes that the eurozone was making progress on containing its long-running crisis.
Hong Kong’s Hang Seng Index rose 2%, while Japan’s Nikkei was up 1.6%. South Korea’s Kospi climbed 2.19%, Australia’s ASX 200 index was up 1.86%, and the Shanghai Composite Index edged up 0.12%.
Banks across the region jumped and in Australia, the CBA was up 3.3% and Macquarie up more than 4%. Westpac was up 3.8% and the NAB closed 4.2% higher.
The ANZ closed up 2.3%.
As for longer-term measures, French and German officials were discussing deeper financial integration among members, Reuters said in a separate report.
But this will need the various parliaments to vote, so the effort may focus on securing agreement that would involve only those EU nations which use the euro.
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