What is Going on in the Eurozone?

Fiscal problems in the euro zone have been a primary cause for the gyrations in the U.S. stock market this year and last.  There is an element of panic that a default by one or more countries (ie, Greece) and/ or financial institutions (Societe Generale?) will cause a cascading "contagion" in the markets, similar to what happened with the bankruptcy of Lehman in 2008.  Whenever the euro zone countries step up to do something, often through the efforts of the European Central Bank, or ECB, the market goes up.  When they are seen as hanging back, markets go down.

This week, we have seen markets go up on what seems to be a concerted effort by the ECB along with other major central banks.  Today it was announced that 3-month USD loans will be made available to European banks who have been having problems placing their commercial paper, which has traditionally been an important source of US dollar funding for them (See AP Story, ECB to Provide Banks with Dollar Loans).  And in a CNBC interview yesterday, U.S. Treasury Secretary Tim Geithner was unambiguous in his statement that Europe would not allow its major financial institutions to default a la Lehman -- Europe is by and large less market oriented than the U.S., and not so concerned about "moral hazard".  (See No European Lehman-Like Collapse?)  

There seems to be a growing consensus that Greece will default and probably exit the euro--its bonds are now yielding 25%-- that this will not be the catastrophe some have been fearing, and that Germany will eventually face the inevitable choices that it has to make in order to save the euro experiment--more central planning of fiscal policy, including some kind of central euro treasury.    (See George Soros' article in The New York Review of Books, Does the Euro Have a Future?)

Nothing is decided yet, but markets have been moving up this week on these less-than apocalyptic assumptions.  As of this writing, the Dow is up over 100 points today (1%) and over 350 points since Wednesday (about 3%).

There will surely be more ups and downs on this roller coaster in the future, but as an investor, it is nice to see gains.  Hopefully they will last.