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A Small But Important Step

June 29, 2012 – 5:03 pm

The big news out this morning giving an early boost to stocks is that an all-night session in the latest summit with EU leaders produced an agreement that will actually help the EU banks- at least in the short term. Germany agreed to allow banks to be recapitalized directly by the EU 500 billion euro permanent bailout fund. Before Germany was opposed to this.

The agreement includes a joint banking supervisory body overseen by the ECB, which was something Germany wanted. This body will take months to establish.

This is not a solution but it is a needed path to a solution, a path to a Federalist banking system for all of the EU; something that is currently lacking. What it does is reduce the odds of a EU breakup but it does not address some very important fundamental issues.

As it is an important step in a direction that pushes forward a tighter Union and solves a funding problem for the larger banks, the stock market here and in Europe will rally. However, in the past the rallies from previous agreements have been shown to be short in duration.

Good Trading
Steve Peasley

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