German bonds fell as European stocks and debt from cash- strapped nations such as Spain and Italy rallied today on speculation policy makers will step up crisis-fighting efforts.

Her emphasis on the cost to Germany, the world's second- biggest exporter after China, of failing to contain the crisis that began in Greece in 2009 underscores the risk to Europe's largest economy and her chances of re-election in 2013.

"Whatever Germany offers to help, we will offer, whether through private business or through political and administrative capabilities, in the spirit of friendship, in the spirit of partnership and not in the sense of imposing something," Merkel said today in a speech to German industrialists.

Eoin Treacy's view At this stage the problems in the Eurozone are fairly well understood by most market participants. The productivity gap between the centre and the periphery, deficit versus surplus counties, Greek sovereign Debt/GDP ratios in the stratosphere, over exposure of the core's banks to the periphery's debt and the absence of a common fiscal policy within a monetary union are all important aspects of this crisis. There has been little focus on solutions primarily because the Eurozone has proven inept in fostering a positive attitude towards its ability to deal with this crisis. However, that does not preclude the possibility that a coherent solution will be found.

The primary question is whether Germany would be better off inside or outside the Euro? Peripheral countries benefitted from the creation of the Euro because their funding costs dropped to historic lows. The fact that they subsequently failed to invest their borrowings prudently is part of the reason this crisis evolved. Germany, as the Eurozone's largest economy, benefitted enormously from the single market. Its much vaunted export sector is primarily focused on the Eurozone and would suffer terribly if the country were to dispense with the currency. Therefore while the electorate voice concerns about funding bailouts, corporate and political Germany are wholehearted supporters of the Euro.

The odds are strongly in favour of the European Financial Stability Facility (EFSF) being passed into law by the end of next month. In addition, there have been suggestions that the European Stability Mechanism's implementation will be brought forward from 2013. There is talk of leveraging the size and remit of the EFSF. Politicians have stepped up attempts to improve confidence in their willingness to support the Eurozone project. So far, willingness rather than ability has been the primary hindrance to improving confidence. Europe is capable of dealing with this crisis, but it needs to take substantive action to convince investors of this.

The DAX Index continues to find support in the region of 5000 and has rallied more than 10% in the last 3 days. A type-2 bottom may be forming with a characteristic loss of momentum, failed downside breaks and the progression of lower highs is now being pressured. A successful push above 5700 may initiate a broader based short covering rally and suggest a medium-term rather than short-term low has been reached.

The EuroBund contract continues to hold its progression of higher reaction lows but has lost momentum and is overextended relative to the 200-day MA. A sustained move below 135 would be a major trend inconsistency and would likely confirm a peak of at least near-term significance has been reached.

The US Dollar has rallied impressively against the Euro over the last month but has lost momentum somewhat. The potential for an additional short-term Euro rally has increased but a sustained move above $1.40 would be required
to check medium-term scope for additional downside.

The Dow Jones Euro STOXX Banks Index pushed above 105 today which is an area I have spoken of as an important psychological barrier. It has now broken the persistent progression of lower rally highs but will need to continue to hold above 100 if potential for additional short-term upside is to be given the benefit of the doubt.

The above charts suggest at least a moderation of bearish sentiment towards the Eurozone.