Last week's euro strength is a bit surprising because recent US economic data suggest that the economy has been performing well. This is surely in continuation after Draghi's affirmation supported by the European policymakers that the ECB will defend its currency at any cost.
The other factors that helped the euro currency was better economic data released by Germany and the ECB and many still believe that the FED could go for quantitative easing.
But the real hope that is pushing down the yields of Spanish and Italian bonds and supporting the European currency is in expectation of policy shift that the European central banks may finally buy sovereign bonds.
It has been noted that the tone of Angela Merkel has surely softened, but she is not the decision-maker. The first hurdle that needs to be overcome will be on September 12 when a nod from the German constitutional courts would pave the way for the German Chancellor.
The real problem is too big with hope being too little that needs to be addressed and the problem is that the European debt is too big, which makes it very difficult to manage to reach better understanding and the hope is too little because there is no real cash available to support new business openings to create new jobs and more importantly increase revenue collection to an extent that can counter debt growth, which means revenue collection should be good enough to settle debt.
Though they meet frequently, the European leaders still split over reforms because they are not the sole decision taker/maker as they require their coalition partners' support. If all (policy-makers) reach consensus, it would mean allowing bond buying by Central Bank, more printing of money and more leniency, but then what about austerity measures, talk about reducing deficit and guarantee to protect tax payers money. These are all unanswered questions that still need to be addressed and properly answered.
My conclusion is that even if there is some sort of understanding reached the marriage will be a short-lived affair and divorce paper could be filed during the honeymoon period, as politicians will never increase tax and therefore the real issue (Debt) would never be resolved without biting the bullet.