A Case of European Manic Depression?

Eurozone manufacturing and services saw an expansion in signs that European woes are at an end. The euro composite index rose to 50.4 in January, up from 48.3 the previous month, according to Markit Economics. Meanwhile, European stocks rose again to reach a six-month high as the Stoxx Europe 600 Index rose 0.3 percent in London and bonds in Portugal and Greece selling at lower yields. Stronger European performance has helped Deutsche Bank

, which was down in morning trading in Frankfurt but has since recovered to trade at a slight gain. This is despite news that Swiss watchdog Comco announced it was begin a probe into the bank's activities. The probe intends to determine if "collusion between derivative traders might have influenced" the Libor. Deutsche Bank is just one of twelve banks being probed. UBS

, Credit Suisse

, Citigroup

, HSBC

, JPMorgan

, Mizuho Financial

, Rabobank International, Royal Bank of Scotland

, Societe Generale

, and Sumitomo Mitsui Banking Corp. were all named in a statement by Comco. According to Comco, there is a chance that the interbank lending rate set in London was the result of collusion in a cartel between the international banks, which stifled competition. The investigation follows similar probes in the

and Britain. While accusations of anticompetition and investigations are headaches that banks would like to ignore, the markets seem to be ignoring the news. UBS is up nearly 3.5% in Swiss trading, with most European banks up on early Friday trading, signalling a similar rise may be likely when trading begins in America. The strong performance suggests that investors are more interested in the condition of the general European economy, which looks stronger today thanks to an expansion in services in the eurozone. The ECB has been planning for near flatline expansion in European economies, with a forecase of 0.3% growth in 2012 after 1.6% growth in 2011, which has prompted the bank to cut lending costs for banks twice in the past two months. The bank has also offered nonstop loans to keep capital flowing. Today's good news will probably not change the ECB's policy, as Europe cannot afford even the slightest upset to what may be the most tempermental market in history. However, finance ministers from those euro states with strong credit--a rare breed these days--are meeting secretly to discuss the current economic situation. The secret meeting of some European officials points to the lack of solidarity and protracted uncertainty that has made Europe a hot potato for investors, and has helped Greek bonds to rise to over 34%. While the jump in manufacturing has helped European banks jump for today, they retain high levels of debt and low levels of capital that remain unsustainable. Until the banks capitalize themselves and European markets grow sustainably and consistently, their gains may be short-lived. In recent history, volitality has meant that one day of good news in Europe was followed by uncertainty, causing big gains to be followed by big losses. For today, at least, news from the continent is good as moods swing to confidence, but investors may soon tire of the region's manic depression.