Thursday’s Thoughts – To ECB Or Not to ECB?

To bail, or not to bail--that is the question:

Whether ’tis nobler in the EU to suffer

The slings and arrows of outrageous swap rates 

Or to print money against a sea of debt

And by printing, inflate them. To loan, to bail-- No more

And by a loan to say we end the illiquidity,

and the thousand natural shocks

That economies are heir to.

The ECB may dig deeper Into its crisis toolbox to stimulate bank lending and fight off a recession as Europe’s leaders gather to lay the foundations for a fiscal union.  

ECB policy makers meeting in Frankfurt are expected to cut the benchmark interest rate by a quarter percentage point to a record-low 1%. They may ALSO loosen collateral criteria to give banks greater access to cheap cash and offer longer-term loans, said three euro-area officials with knowledge of the deliberations speaking to Bloomberg.

Hours later, Europe’s leaders will convene in Brussels for talks to frame the FIFTH “comprehensive solution" in 19 months to a debt crisis that’s left Germany and France facing the threat of losing their AAA rating from Standard & Poor’s. The ECB says that governments must address the cause of the turmoil as it focuses on getting banks lending again rather than increasing purchases of indebted nations’ bonds.

“It’s yet another date with destiny in the euro area,” said Julian Callow, chief European economist at Barclays Capital in London. “It’s clear there won’t be the ultimate resolution, but the proposals are going in the right direction. The markets seem to have finally understood that in the ECB’s eyes it’s up to governments to solve it, and it’s worth noting that it’s doing a lot on the banking side.”

Fitch says last weekend’s austerity plan put together by Italy’s new government eases near-term pressure on the country’s credit A+ rating, but the outlook still remains negative. Budget savings were made, says the agency, but the question remains on whether this paves the way for economic growth to return.

European options traders, meanwhile are pushing bullish bets on Europe to the highest level since March 2010 as governments work to forge a solution to the two-year-old sovereign debt crisis. The ratio of outstanding calls to buy the Euro Stoxx 50 Index versus puts to sell has climbed to a 20-month high of .92-to-1, according to…