Europe might be on sounder fiscal footing after Friday's historic pact for more coordination among nations. But according to the Wall St Journal investors who bet that the Continent's problems are over could be making a big mistake, say analysts and strategists.
On Friday, the 17 countries of the euro zone formally agreed to run only minimal budget deficits in the future and gave the European Court of Justice the right to strike down national laws that could lead to governments overspending. Nine other members of the broader European Union said they would consult with their parliaments about joining the fiscal pact. The U.K. rejected it.
The drastic steps did little, however, to bring down the sky-high bond yields plaguing some European nations now. That is largely in the hands of the European Central Bank, strategists say. Traders had hoped the sweeping measures being discussed this week would provide Mario Draghi, the ECB's new president, with the cover he needed to embark on a large-scale program of bond buying. The Standard & Poor's 500-stock index dropped 2.1% on Thursday, after Mr. Draghi signaled that no such plan was in the works.
There is, to be sure, a sense among most investors and strategists that Europe's leaders will do whatever it takes to keep the EU from breaking apart….Yet even if Europe solves its financial crisis and avoids a breakup, it still has to deal with its economic doldrums….
Don't stop now. There's more at http://online.wsj.com/article/SB10001424052970204319004577088421693739862.html?mod=personal_fin_newsreel
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