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News of progress in the euro-debt remedies cheered investors around the globe. Several measures take the pressure off the underlying risk factor that has cast a long shadow over the global economic recovery – contagion. Germany’s agreement to allow direct injection of euro bailout capital into troubled banks, treatment of aid for Spanish banks as equal to existing bond holders and easing of government bond buying restrictions comprised a major turn in European dynamics, which quickly brought down the cost of borrowing for Spain and Italy. At the same time, European leaders have agreed to central supervision of eurozone banks, tightening the bond among member nations and, in theory, applying a more consistent approach to resolving financial crises and liquidity shocks. These steps relieve short-term concerns of the spread of Europe’s banking crisis by providing much-needed liquidity and at least partially stemming further economic contraction. On a longer-term basis, assuming a consensus regarding the details of the agreement, a more central management of the banking sector should assist in a systemic resolution of the European debt crisis.

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