The euro zone doesn’t look as scary today as it did a few months ago. It’s not that austerity measures are fully developed. It’s not that the stress test convinced everyone that the banks are sound. It’s not that the bailout is filled with shock and awe.
It’s that the whole situation together is now judged to be less likely to begin a worldwide panic than it was before. In the past, we pointed out that when the euro was $1.20/€1, the whisper number was parity, because at that point, pessimism was dominant, and no one expected a Euro rally. Now at $1.30/€1, most people are no longer discussing parity.