The market is all fired up for Trichet to ride to the rescue of European bond markets with his own ocean liner of bond buying. If he fails to deliver a monetary bailout to go along with the fiscal presents being put under European Christmas trees than the euro will begin to slide anew.
Pressure on the ECB from the politicians is enormous…Which tends to argue for the ECB to hold fast, to preserve their independence.
There is a time for action and a time for principle, and now is a time for action. Trichet can stick it to the governments another time.
European bond yields are much lower this morning in anticipation of an aggressive ECB. Spanish spreads over bunds are down to 235 bp after peaking above 300 bp on Tuesday, a big benefit for the euro. That improvement will vanish if Trichet does not announce a boatload of bond buying.
