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Credit Insights

Once Again, European Headlines Dominate

We remain skeptical that the Europeans are close to being able to announce a decisive and comprehensive plan.

The market's faith that European policymakers will soon create and implement a coordinated plan to stem the European sovereign debt crisis continued unabated last week. The news flow out of Europe emphasized the behind-the-scenes discussions that European policymakers were conducting to develop a way to curtail the sovereign debt crisis from morphing into a full-blown financial meltdown. These reports fed the market's animal spirits, driving gains for several trading sessions. In addition, several economic indicators released in the United States (especially payrolls and ISM services) were better than expected and helped to alleviate much of the negative sentiment on the Street.

We, on the other hand, remain skeptical that the Europeans are close to being able to announce a decisive and comprehensive plan. Rhetoric on the surface from numerous politicians, such as Germany's Angela Merkel ("time is pressing," "should be decided on quickly"), appears to underscore the fact that politicians realize they need to act quickly. But other reports highlight that politicians have not yet even gotten to the stage where the discussions can be formalized and presented to the regulatory bodies, much less brought back to the home countries where each of the 17 European Union members will then have to discuss and approve the plans. While the rumors leaked to investors have acted as a salve, the market is inherently an inpatient animal that will require decisive action, sooner rather than later.