There is no doubt that investors were justified in venting their spleens on Europe's moribund leaders last week. The political elite were unable to instil confidence in the market in response to the sovereign debt crisis, which is currently choking on the fumes from an acrid stench of fear. One day these politicians will wake up and realise that ostrich-like behaviour is totally unacceptable. Their inertia probably contributed more to the seismic volatility last week than any other factor.
Two issues are indisputable. Firstly the ECB is grossly undercapitalised to be the "garage of last resort" for billions of toxic bonds. How dare the EU leave Olli Rehn and Jean-Claude Trichet to hold the fort. If they are serious about preserving the EU, they must put forward a plausible 10-year plan for cutting its constituent members' debt substantially and implementing austerity programmes across the spectrum with immediate effect. Failure to do so will see a further increase in visceral contagion.
President Sarkozy and Chancellor Merkel, despite the damage these measures may do to their own political aspirations, must start today by giving unequivocal support for the issuing of a eurobond, which in the next decade will replace sovereign bond issues. It's Hobson's choice.