Friday, June 7, 2013

All is well in the euro land

It is remarkable just how much faith the markets are placing in the Eurozone's stability these days. This is especially surprising given that less than a year ago we were staring at the collapsing Spanish banking system and the nation's government's inability to roll its debt.

The ECB publishes a stress index of the euro area's financial system. The index consists of volatility measures from the bond markets, equity markets, market stress measures of banks, money markets, foreign exchange, as well as the correlation among these sub-indices. This "stress gauge" now shows a reading that is below the pre-recession average - in fact near the 2007 lows. Mario Draghi should certainly congratulate himself - this result has exceeded most economists' and market analysts' expectations. Enjoy it while it lasts.
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