The euro-area authorities are proposing to resolve the sovereign debt problem through the Fiscal Compact, which limits budget deficits, but whose effectiveness is untested; and joint bailout funds, which are limited in size. The issue of joint and severally guaranteed “eurobonds” has been ruled out for the time being. That leaves the ECB as the most credible alternative in the short term. The ECB has announced its willingness to intervene in unlimited amounts in the secondary market for the sovereign debt of euro-area Member States subject to “strict and effective conditionality” under a bail-out.

The euro-area authorities are proposing to resolve the banking problem by separating it as far as possible from the sovereign debt problem. A “single supervisory mechanism” based on the ECB is proposed as a first step towards

Banking Union in the euro area. This is a condition for direct euro-area bail-outs of banks in future. The timetable is tight and there are a number of issues yet to be resolved.

Will these measures have a lasting impact in restoring market confidence? The main tests are: whether they lead to a return to real economic growth and an improvement in the competitiveness of the periphery of the euro area in relation to the core; and how the political implications are addressed. The outcome is not yet clear.

Eoin Treacy's view My view – The Eurozone crisis has in all likelihood passed its nadir as governments have signed up to the idea of greater integration and the ECB has bought peripheral debt, lowered collateral requirements and made virtually limitless liquidity available to the banking sector. There are still considerable issues with the ability of governments to deliver on their respective austerity programs but so far the internal devaluation that Europe has embarked on continues to go according to plan.

The banking sector represents the focus of the problem so how they are recapitalised is a significant challenge for the Eurozone. The assumption of responsibility for banking regulation by the ECB paves the way for an eventual European version of the USA's FDIC. How this is structured will be negotiated over the next six months.

The DJ Euro Banks Index rebounded impressively from the July low and has been ranging mostly above 100 since September. A sustained move below that level would be required to question medium-term scope for additional higher to lateral ranging. .