Volkswagen AG agreed to buy the 50.1 percent stake in Porsche SE's automotive business that it doesn't already own for 4.46 billion euros ($5.6 billion), ending a seven-year takeover saga that divided two of Germany's most powerful families.

VW was able

Eoin Treacy's view Let us summarise the problem: A number of European countries remain in recession, even Germany is at risk of contraction and unemployment remains stubbornly high on the periphery. The European banking sector is broke. No one has a clear idea of what the sector's liabilities are. To date governments have been too optimistic in their forecasts for earnings potential and not pessimistic enough about the scale of the losses which need to be written off. While governments agreed to the idea of a central banking authority for the Eurozone last month, the implementation process remains fraught with uncertainty. Policy across Europe is now focused on deeper integration but politicians are having difficulty convincing electorates of the merits of such moves.

Against this background, the ECB has committed itself to doing whatever Is necessary to ensure its own survival. The spread between 3-month Euro LIBOR and 3-month German government bonds continues to contract suggesting the ECB is increasing the quantity of liquidity available at the discount window. This policy lends assistance to the banking sector in the short-term, but does little to solve its problems over the medium term. This is why political cohesion is the linchpin upon which the recovery hypothesis relies.

The competition between positive short-term policy responses with medium to longer-term systemic worries has framed the performance of risk assets over the last year. The Euro Stoxx Banks Index bounced back emphatically over the last four sessions to form a failed downside break. While this is a positive short-term development, a sustained move back above 100 will be required to begin to suggest a return to demand dominance beyond the current bout of short covering.

Since the global monetary system is highly interconnected, the additional liquidity provision aimed at supporting the European economy will filter through to other assets. Some of the most promising, particularly in Asia, are likely to be net beneficiaries. Since commodities cannot simply be printed into existence they also tend to benefit from a sharp increase in money supply.