Eurozone Baby Steps Along

The EU summit took additional steps to manage the financial crisis within the EZ and about as
expected (see below). Communication between Germany and the ECB continues to stink, however.
It looks like Draghi got hung out to dry on his views about using the ECB to step up on the
purchases of weak sovereign credits, and he has suffered a loss of credibility in the markets on that
subject thanks to Berlin.

Bond players want the lender of last resort option for the ECB, especially with more than $1 tril.
of sovereign and euro bank refinancing ahead over the first half of 2012. Scant evidence now that
players are going to get their wish. This leaves open the possibility of further turbulence in the
EZ sovereign debt and capital markets, especially since a business downturn in Europe is going
to suppress incomes and profits which in turn, will adversely affect the tax revenues garnered by
individual countries. So, uncertainty overhang surrounding the EZ will be only partly alleviated
as we swing into 2012.