As we and many have noted during the sovereign debt crisis in Europe, the ultimate end to the current dilemma requires a comprehensive and coordinated solution from all of its members. In an article over night from Bloomberg we read that, “a measure of European Central Bank (ECB) leverage may grow from a record 30 times, raising the risk of a widening in sovereign bond spreads unless governments commit a detailed rescue plan for members.” The two challenges we have seen from Europe is the conscious effort to do just enough to get by which doesn’t instill confidence and inability to comprehend the severity of the situation. We feel the positive of stretching beyond the comfortable fiscal support zone eventually will strongly coerce a decision to save the Union by establishing an all-in solution.

 

At some point, the fear factor becomes the catalyst for the ending of the fatiguing daily limbo. As the situation evolves, the similarities between the United States’ challenges in 2008 and 2009, and the current European situation are growing. Though the former ECB president Trichet chastised the Federal Reserve for its quantitative easing effort by purchasing “toxic” mortgage assets, the ECB has gone down the same path with sovereign debt rated below investment grade in some cases. It has had some positive impacts though it has been more of a reactionary solution driven by necessity. This is just the first step toward a comprehensive solution.

 

The impact has been seen in monitoring the short term yields of Italy and Spain.

 

Italy & Spain 2-Year Government Yield

 

 

Source: Bloomberg

 

Though we continue to see the daily fluctuating headlines, we are also seeing some progress that appears to be lost on the fatigued investor. All the metrics that are very alarming eventually force a solution which we believe is known to all of Europe…no matter how difficult it may be to admit it publicly. As Ralph Waldo Emerson stated, “Once you make a decision, the universe conspires to make it happen.”

 

 

 

 

(c) Advisors Asset Management

www.aam.us.com