Following Mario Draghi’s remarks last week in London, wherein he promised that the ECB stood ready to do ‘whatever it takes’ to save the Euro, as long as it was ‘within its mandate’, the markets were flooded with a wave of optimism. This optimism took on frenzied proportions as the head of the Austrian central bank, one of 23 members of the ECB’s governing council, evidenced support for the idea of the ESM getting a banking license. Much of this optimism has vanished in the face of the reality that confronted markets at the ECB’s press conference today. That is not to say that there has been no progress, only that what has been announced is not a game-changer.
We were sceptical at that time and said so. It turns out we were justified in our scepticism. The ECB did not intend to, nor was capable at this point of delivering a 'bazooka'. It has outright rejected the idea of the ESM getting a banking licence, once again. It has however held out a promise to reactivate the defunct Securities Markets Program (SMP) albeit with some important modifications. This note discusses what this means and what impact this may have on the progression of the Eurocrisis.