PARIS - The European Central Bank has kept its promise. Just as its President Mario Draghi had announced in July, the ECB is now ready to buy bonds from struggling euro member states.
On Thursday, Draghi detailed his plan adding a new term to the monetary policy lexicon: outright monetary transaction (OMT). And yet at the same time, he met investors’ expectations. The ECB will make unlimited purchases in bond markets, with greater transparency, and won't claim senior creditor status over other bondholders.
As expected, he did not give in to those asking for a blank check. The ECB will only intervene after countries have agreed on certain conditions with the euro zone rescue fund, the European Stability Mechanism, which may request budget stabilization. The ECB will be able to cease buying a country’s bonds if fiscal requirements are not met, just as the International Monetary Fund does.
But beyond its specific mechanisms, this plan is good news for two basic reasons. First, the ECB will keep pushing the limits, which is the only way to achieve Europe’s recovery. It is unlikely that it will manage to actually bring European markets back to normal, the official motive of its intervention. Yet by providing them with more time, the latest plan is very likely to bring relief to countries that risk free falling into the spiral of economic depression.
Then, there is also confirmation that Draghi has gained power within the ECB. Only one out of the 23 members of the Governing Council voted against the plan, which shows that at least one German official voted for it (as there are two German members on the Governing Council).
When a storm hits, it is always better to have a single captain at the helm than 23 crewmembers fighting for control.
Yet, as Draghi pointed out, one needs two legs to move forward. The ECB is taking its big step forward. Now countries need to follow up, otherwise Europe will collapse.
Once again, national politicians will have to make a move. Success is not guaranteed yet, and it will take both courage and imagination. If it fails, Draghi will have to go. Meanwhile, some Germans are already preparing to launch a tar-and-feathers attack on the Italian who is taking the euro further than ever before into unknown territory.
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