Mario Draghi, the president of the European Central Bank, caused an optimistic stir last month with his stirring, almost clarion, promise that the bank was 'ready to do whatever it takes' to preserve the euro. 'Believe me, it will be enough,' he added to underline his resolve. Headlines heralded 'the Magic Draghi'.
A week later at the ECB's monthly meeting, the expectations of heroic action or even that A Big Plan was in the works dissolved in mealy-mouthed platitudes that euro-zone countries must work harder on their austerity exercises. When push came to shove, poof! the Magic Draghi dissolved into a puff of smoke.
The ECB made no change last week in interest rates, offered no new policies, least of all any overt suggestion that it should do the normal job of a central bank and act as lender of last resort to lower bond yields in the vulnerable southern periphery countries, notably Spain and Italy.
As blogger Tim Duy wrote, the ECB offered only 'vague promises about policies that may or may not be implemented'.
The language of the statement was classic Eurospeak: 'Exceptionally high risk premia are observed in government bond prices in several countries. Risk premia that are related to fears of the reversibility of the euro are unacceptable, and they need to be addressed in a fundamental manner. The euro is irreversible ...
'Policymakers in the euro area need to push ahead with fiscal consolidation, structural reform and European institution-building with great determination.' And so on, without considering the ECB itself has the best weapon in reducing the risk premia, by buying bonds. But this policy is opposed by Germany, which is pushing for austerity and getting fiscal houses in order first.