They won’t, but play along with me.
The assumption is that the euro would rally because peripheral spreads would narrow on buying by the ECB.
Would the rally be of the knee-jerk, reflex- variety or one with some legs?
Id anticipate the rally to be short-lived. Most rescue-rallies in the euro area are.
Why?
Because there is always someone left to rescue. After Spain it will be Italy, after Italy it will be France. Soon there will be as many countries receiving bailouts as there are countries financing the bailouts….
Only Greece has seen a debt restructuring as a result of its bailout program, so to my mind, there are only two outcomes. Failures of the bailout programs to solve the problem unless or a true fiscal union in which all euro area countries share the debt of the others.
At present, Europe is not close to doing what is needed. It is unwilling to either bite the bullet and restructure or to swallow the debts of others. Until they do, it’s all “extend and pretend.”
