Draghi’s speech is misunderstood..


ECB boss Mario Draghi

ECB boss Mario Draghi

Wow, the ECB really is preparing to hit the nuclear button.

Mario Draghi has activated the ECB’s monetary policy, risk, and market committees to draw up drastic plans.

This will include open-market operations – ie bond purchases – that may be “unlimited” and may be “unsterilised” (ie QE net stimulus).

The missile is being loaded. The launch trigger is being cocked (if you cock such things).

Markets have tanked because they don’t get instant gratification, but I rather suspect that they have missed the point.

All this can only happen when the EFSF/ESM bail-out funds are activated by governments, because only they have the power to force supplicant states to sign a Memorandum and give up fiscal sovereignty.

That is the famous “conditionality” demanded by the Teutonic bloc and on which the whole package hinges.

Over to you, Mariano Rajoy. Now you must fall on your political sword, sacrifice your career for the EMU cause, and request a formal rescue for Spain to set this whole process in motion.

Suerte, Caballero.

All for now, here is the key bit of Draghi’s statement.

As implementation takes time and financial markets often only adjust once success becomes clearly visible, governments must stand ready to activate the EFSF/ESM in the bond market when exceptional financial market circumstances and risks to financial stability exist – with strict and effective conditionality in line with the established guidelines. The adherence of governments to their commitments and the fulfilment by the EFSF/ESM of their role are necessary conditions [for some action on the ECB side]. The Governing Council, within its mandate to maintain price stability over the medium term and in observance of its independence in determining monetary policy, may undertake outright open market operations of a size adequate to reach its objective. In this context, the concerns of private investors about seniority will be addressed. Furthermore, the Governing Council may consider undertaking further non-standard monetary policy measures according to what is required to repair monetary policy transmission. Over the coming weeks, we will design the appropriate modalities for such policy measures”.

More later.