FX Briefs says “No they don’t!”
If the EU tries to shoe-horn efforts to support the banking system into the narrow confines of the Growth and Stability pact they will find themselves in a Japanese-like stalemate where bad debts are not cleared and efforts are insufficient to solve the problem. Solve the problem first, worry about finances later. The stakes are too great to do otherwise.
Juncker proposes state-by-state measures, with “all measures” being taken to avoid banking failures that could pose systemic risks.
EUR/USD and EUR/JPY are rallying on the news, but I suspect the devils are in the lack of details and the rebound will be short-lived if it is limited by individual state budgets.
Trichet has added his two cents, saying “We were underestimating risks on financial markets”. This sounds as though he may have gotten the message and could be open to a quick rate cut.
