Euro Euphoria: Stocks Surge on Latest Bailout Plans, Proposals and Rumors

Stocks surged early Monday on renewed hopes for yet another new solution to Europe's sovereign debt crisis.

Following huge gains for Europe's major bourses, the Dow was recently up more-than 300 points while the S&P 500 was up 3.2%. The euro rallied sharply vs. the dollar, putting upward pressure on commodities like gold and oil and other so-called risk assets while Treasury prices fell.

In addition to a strong start to the U.S. holiday shopping season, several items contributed to the early euphoria, including:

• Rumors, since denied, of an IMF bailout for Italy.

• New guidelines, to be discussed at a meeting of finance ministers later this week, allowing the European Financial Stability Fund to insure up to 30% of debt offerings by struggling nations.

• Weekend comments by German Finance Minister Wolfgang Schaeuble urging fast-track treaty changes to tighten budget discipline and fiscal unity among EU members.

• Rising expectations the Fed will embark on another round of quantitative easing, focused on buying mortgage-backed securities, as part of a global effort by central bankers to ease policy. (Update: Citing "the debt crisis in Europe…becoming more severe," Israel's central bank cut rates Monday evening local time; the bank's second rate cut since September was widely expected.)

In the accompanying video, Henry and I discussed these and related issues with John Mauldin, president of Millennium Wave Investments and author of (most recently) Endgame: The End of the Debt Supercycle and How It Changes Everything.

Mauldin, who last May correctly predicted the Greek debt crisis would not be "contained", says the European crisis is approaching a climax, one way or another.

"It is getting to the place where it's an absolute screaming crisis," Mauldin says citing Germany's nearly failed debt offering on Friday. Separately, Moody's warned the "rapid escalation" of the crisis puts all European sovereign debt ratings at risk for downgrade while the Organization for Economic Cooperation and Development (OECD) cut its forecast for growth in Europe and the globe.

"We're getting to the end," Mauldin says. "What they will do, it's not clear [but] there has to be a crisis to force it. That's just the way we are as human beings. We wait until we're forced to make a decision."

The challenge in Europe, as it's always been, is trying to get the EU's 17-member nations to agree on plan. Most notable today is Schaeuble's call for more budgetary and fiscal unity, which would effectively mean member states (including Germany) ceding sovereignty over economic matters to a centralized authority in Brussels. In other words, Europe would become more like the United States of America, only without the shared national identity and culture.

"What you're dealing with here is this enormous desire in Europe for unity and maintain the euro...and their historical desire to be Italians and Spanish and French," Mauldin says. "And it's conflicting. It's 100% opposite."

How this all plays out remains to be seen; at Business Insider, Henry outlines four ways the crisis is likely to be resolved:

1. Europe's leaders will agree to more bailouts that will kick the can down the road for a while longer.

2. The Euro-zone will break up.

3. Full fiscal integration with the creation of a full-fledged central bank and Euro-bonds.

4. Collapse.

For the moment traders are betting on a happy ending, or at least are betting against the worst-case scenarios and covering short positions that paid off so well the past two weeks. For the moment.

Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com