Will Europe boost stocks?

Global stocks are on the rise, on hopes that European leaders are moving toward a new plan to resolve the debt crisis this week. If the EU summit produces tangible results, stocks could enjoy a year-end rally. But if things fall apart in Brussels, investors will likely reverse course, sell stocks and wait until January for more information to emerge.

There are a lot of moving parts that will need to synchronize before we get to Friday's European summit in Brussels. Monday, Italy's newly minted Premier Mario Monti, unveiled a 30-billion euro ($40.5 billion) austerity package to Italy's parliament. The Italian cabinet already passed the budget, which includes both spending cuts and tax increases, but now Monti must convince Parliament that the plan will boost Italy's economy over the long term.

Meanwhile, German Chancellor Angela Merkel and French Prime Minister Nicolas Sarkozy are meeting in Paris to get on the same page over new rules to beef up economic governance in the EU. Merkel wants to centralize power over national budgets with a European "super commissioner" and create automatic sanctions against those who don't comply with new rules. Sarkozy wants a softer approach, whereby individual nations retain more budget authority. He also wants to limit the new rules to the 17 countries who share the common currency, not the broader 27 countries that comprise the full European Union.

Assuming that Germany and France can agree (big assumption!), the action will then turn to Brussels at the end of the week. In order for the European cloud of uncertainty to lift from the global economy and from stocks, investors will want specifics, not platitudes. A change in economic governance is seen as the key to getting the European Central Bank behind a larger bailout. The steps are likely to include:

1) Fiscal discipline via amendments to existing EU treaties: New rules would limit deficits and subject nations to European supervision and sanctions

2) Augmentation of European bailout fund (EFSF): There's approximately 335 billion euros left in the fund. Experts say that with leverage, the fund could expand by two to three times

3) IMF involvement: The international monetary fund is likely to help out, though in what manner is unclear

4) ECB action: Thus far, the European Central Bank has kept Italian and Spanish bond purchases to a minimum. Last week, Mario Draghi, head of the European Central Bank spoke to the European Parliament and basically said that if the EU can agree on a fiscal compact that "would enshrine the essence of fiscal rules," it would be easier for the ECB to act more forcefully.

Angela Merkel said a cure to the debt contagion will be "a long process, and that process will take years." But investors have made it clear that they will not wait years. In fact, February 2012 looms large because that's when Italy will need to begin refinancing roughly $300 billion worth of bonds. While Italy is absorbing interest rates of 7 percent or more now, it can't do so indefinitely. What's more, February is the month when Greece will need its seventh tranche of bailout funds.

Jill Schlesinger

Jill Schlesinger, CFP® is the Emmy-nominated business analyst for CBS News. She covers the economy, markets, investing and anything else with a dollar sign on TV, radio (including her nationally syndicated radio show), the web and her blog, "Jill on Money." Prior to her second career at CBS, Jill spent 14 years as the co-owner and chief investment officer for an independent investment advisory firm. She began her career as a self-employed options trader on the Commodities Exchange of New York, following her graduation from Brown University.

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