Looking at the action in Europe this morning, it is evident that something is going on. First, these massive moves (more than 3% -- and financial institutions more than 4%) impact short positions, either forcing additional collateral posting, or liquidating and taking the hit! Well, it looks that option two was selected (usually that's the way out), buy the underlying and get out of your short positions.
The same is true for the U.S. BTW -- so now what. Well the reality is still the same; there is no quick or easy fix for Europe -- and some rather hard things are occurring in Italy this week (a number of bond auctions). Stories that the ECB has changed its mind (over Merkels cold dead body!), or that the IMF is putting in place a $600 billion facility for Italy (right because it makes sense for the rest of the world to "bail out Europe" when they don't have the balls to do anything!) have come and gone (official denial). Right now the market says up up up, and so the shorts have to liquidate.
These rumors are just explaining a classic short squeeze that's been played a number of times in the past. Since the regulators know the size of the short positions, they can judge when and where to act to "kill the shorts" . Bottom line there are no real solutions being contemplated (in public at least). My guess is that Germany's unwillingness to do anything here is a precursor to a German exit of the Euro -- more expensive for Europe but probably cheaper for Germany. The only other option is fiscal integration (they don't have the time), ECB action (Merkel would have to eat her words of the weekend and resign herself to losing power). IMF could come in but just doesn't have the resources here to do anything useful (and the Americans who pick up 1/4 of the IMF build would throw a hissy fit).