I haven’t said much on Europe over the last couple of days. There are obviously lots of talks going on and stress continues in the collateral markets even if bond yields have eased.

However, my gut right now tells me that we are done here. Sarkozy, Merkel and Draghi are signaling more explicitly that they understand they are facing a run and they know how to stop it.

Now, its not that I think they have come to some sudden realization. I am sure they knew this all along. However, they have essentially dropped the credible commitment to be irrational card.

Once, you start hinting that you are not insane you really can’t play that card anymore. So, now the question becomes how far we are going to drag all of this out before the situation is saved. But, you see if we know that in the end we are going to be saved, then to a large extent we are saved right now.

The only thing hanging over our head is the possibility of an event that forces leaders back into their corners, once again being able to commit to irrationality.

So Europe will face recession yes, but the worst case scenarios seem to be moving off the table.