Reports today indicate that Germany and France will propose modifying EU treaties to try to prevent a future economic crisis.
“In what is seen as a concession by Sarkozy, the pact includes automatic sanctions for member states that violate an existing rule to keep budget deficits under 3% of gross domestic product...
"The crisis requires an extra commitment towards unity and a Europe that will not repeat the mistakes of the past," said Sarkozy, speaking alongside Merkel, at a press conference...
It would also require governments to enshrine a "golden rule" in national constitutions that would likely require committing to balanced budgets.” - CNN
Simultaneously, markets seemed to breathe a sigh of relief as Italy's bond yields dropped:
“Italian bond yields backed further away from the danger zone Monday, as Italy's new prime minister prepared to present a budget proposal that includes €30 billion in new taxes and spending cuts over two years.” - CNN
The obvious take-away from this is that Europe is trying to get a handle on its problems by taking a stab at fiscal conservatism: The German/French proposal appears to emphasize reducing deficits and, perhaps, efforts at balanced budgets in member countries. Similarly, Italy's bond yields have dropped as a result of an expected proposal to reduce spending and deficits.