The ECB has ‘written the check’ by buying national govt bonds in the secondary market in sufficient size to allow the national govs to fund themselves, and equities are coming back as solvency fears abate.
There is still solvency risk, but now that risk is the risk of the ECB cutting off any nation in question.
And with exports firming the same forces are causing the currency to strengthen to the point where net exports remain relatively stable.
The ECB is also in full control of the banking system liquidity, as it too is dependent on ECB funding, and dictates terms and conditions there as well, where there need be no failures (even a bank with negative capital can be sustained by liquidity provision) unless the ECB decides to let a bank fail.
ECB’s Trichet Says European Economy Showing ‘Encouraging’ Signs
Trichet dismisses fears over eurozone
Trichet Says European Capacity to Decide Always Underestimated
Trichet Says Bond Market Developments ‘Going in Right Direction’
Trichet Calls for ‘Appropriate’ Action on Stress Tests
Banks Will Need More Cash After Stress Tests
EU ‘Stress’ Tests Shrouded in Secrecy
EU Commission’s Barroso Says Bank Stress Tests Are ‘Credible’
ECB’s Bini Smaghi Says Greece Must Maintain Consolidation Effort
Bini Smaghi Says Market Rate Increase Won’t Affect Bank Loans
Stark Says ECB’s Monetary Analysis Enforces Discipline
Annual German Inflation Slows in June to 0.9 Per Cent
German Upper House Approves Naked Short-Selling Ban
French Manufacturing Rose in May, Lifted by Exports, Car Output
Italian Production Climbs as Weak Euro, Recovery Lifts Exports
Spain to allow cajas to sell 50% of equity
Greece Approves Austerity Plan Amid Outcry