I’ve been very clear about my position on Europe for the last year.  Further integration can work and European leaders should seek to move towards completing their flawed monetary union so as to rectify the trade imbalance at the root of this crisis.  This position hasn’t been well received for many reasons, but it’s now looking increasingly popular.  After last week’s turmoil and what appeared like increasing defection talk, European leaders are clearly working on some sort of plan that will lead to further integration which could pave the way for further ECB action and eventually a completion of the EMU in the form of E-bonds and ultimately a central treasury.

The latest reports come from several sources.  Welt online is reporting that the Bundesbank is increasingly open to intervention:

The Bundesbank no longer rules out common European bonds – so-called Euro-bonds – but not immediately. The prerequisite, however, is closer financial integration of the euro countries. “This means joint control over the budgets of the member countries, including pass-through rights, individual countries should violate the agreed rules,” said Bundesbank President Jens Weidmann of the “Berliner Zeitung”.

Whether Eurobonds would be introduced, should decide the policy. “You’d be well advised, however, only at the end of an integration process to think about it,” said Bundesbank chief.

Reuters and the WSJ are reporting similar rumors about further integration (see here and here).   The timeline here is for the December 9th summit so it wouldn’t be shocking to see a face ripper rally in equities in the coming weeks leading up to that meeting.  There are A LOT of investors caught flat footed right now betting on the end of the world scenario.  Remember, this is the global government put at work.  Getting in front of this via short positions has been the equivalent of stepping in front of a bullet train.

But more importantly, we should applaud Europe for beginning to acknowledge the depth of their problems and taking the necessary steps to follow-thru on fixing the problems.  Let’s hope they actually take firm action in the weeks ahead.  The global economy literally hangs in the balance.  A bazooka is required and markets will not wait long for EMU leaders to act.  I’ve been waiting for a great European leader to step forward, take control of this environment and eliminate this unnecessary solvency crisis.  To European leaders, I say – be bold, be proactive, be leaders.  The entire world is relying on you.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  1. Who cares if the bazooka rumour is true? Just the blossoming of this new rumour might be enough to levitate markets. As you say, everyone’s betting on Armageddon. Every 1% rally’s been beaten back down. Armageddon’s the crowded trade. Worry enough people that the market’s not going down and it might pop back up fast.

    I was shaking my head reading articles last week that suggested Germany wasn’t going to print money until they saw bank runs and liquidity collapse on home soil. It really looked like the market believed that crap, too.


  2. Mountaineer: “Munchau at the FT just nailed it today; 1) immediate ECB backstop 2) Eurobond 3) credible timeline for fiscal union”.

    Won’t these three parts of a new plan require a change to the EU treaty, to be voted on by all 17 member nations? What if even one member nation votes against this new plan?

  3. truly great synopsis of the just released efsf guidelines on zh (by peter tchir):

    my take away:

    1. looks like efsf is being planned to replace ecb secondary market purchases (which is interesting in light of recent rumors that ecb is inching to greater smp)

    2. each default insurance certificate will be unfunded until bond default (which is insane)

  4. Ben answered my question: “This fiscal integration process will require treaty changes and will need to be voted on by each member country of EMU.

    How long did it take the EMU to approve the EFSF? This will take much much longer, and the market may not be able to wait that long. As I have previously mentioned here, this is no longer a financial crisis, but rather a political crisis.

    Sure the European elites want a more integrated EU, but the voters may have a different idea. – - thanks, Ben.

    The equity markets may levitate for 1 to 3 days, but once this realization sets in, the euphoria may fade… secondary mkt purchases by ecb in bulk may be only temporary.

  5. you have to keep in mind, that a eurobond would drastically raise rates for Germany, Europe´s last economic engine that is showing some cracks too.

    of course it could hold the eurozone together.
    or not, when you look at the problems the EFSF has raising capital.

    to rush to such a decision isn´t bold, at least from a german leaders standpoint.

  6. When ever any of the German officials discuss the possibility of Eurozone bonds has added the quaifying remark that they would have to be accompanied by reforms.

    I don’t think that any of the countries that are currently experiencing funding difficulties are all that keen on the reforms that the Germans are suggesting.

    When Germany was re-unified, the people on either side of the wall were prepared to go through tough times economically to make the union work. Both sides wanted the unification and was a grassroots movement.

    I don’t see the EU in the same way. When people from within the Eurozone suggest solutions, they rarely say that they are prepared to go through significant hardships themselves, but are only too happy to suggest ways in which other countries should suffer.

    The Eurozone looks like a Union of disparate counries where the people do not feel a common purpose and are not prepared to endure difficulties to make it worse. Further integration might create a larger version of Yugoslavia.

  7. Looks as if global credit markets are calling bs on the so called bazooka. Anyone really surprised?