Draghi will do what it takes (give or take)
Financial markets got some clarity from the European Central Bank (ECB) president today on what the bank was prepared to do to help troubled eurozone economies. There was also some genuine news in what Mario Draghi said on the issue of seniority.
But - as Mr Draghi said himself - there are plenty of details still to be filled in. As I suggested in my blog on Saturday, he's going to make sure that governments get their act together first.
The ECB president confirmed that the bank was willing to buy government bonds in the secondary market, but there were three key conditions.
First, the country concerned must have already applied for support from the European rescue funds - the European Financial Stability Facility (EFSF) and/or the European Stability Mechanism (ESM).
Second, that support would need to have strings attached - conditionality. In other words, the beneficiary government would need to have made appropriate promises on fiscal policy and structural reforms.
And third, the ECB governing council would itself have to decide that central bank bond purchases are also needed. Here, Mr Draghi was very clear that "monetary policy remains independent": conditions one and two are necessary for the ECB to act, but there's no guarantee that it will.
Will this be enough? The early response of financial market analysts seems to be that it will not be: the head of Pimco, Bill Gross, for example has already said the market will be disappointed.
They will be especially disappointed, probably, by the lack of detail on how, exactly, the ECB plans to go about any bond purchases - and the lack of a time frame.
The ECB president said the relevant committees would need to work on the "modalities" of any ECB intervention over the next few weeks.
Talk of committees makes investors' hearts sink. It sounds bureaucratic and slow, when the one thing the ECB is supposed to have over governments is that it can act quickly, without all those bloomin' meetings.
He also said that one member of the governing council had objected to today's statement. The assumption is that it was the head of the Bundesbank.
But, as Mr Draghi himself said, at the moment there is no country that has applied to the EFSF or ESM - so even if the ECB were ready to act, "there would be no case for doing so".
And in some areas, the lack of detail was interesting in its own right.
Crucially, Mr Draghi explicitly left open whether the new bond purchases would be sterilised - i.e. whether the ECB would sell other assets, to leave the total money supply unchanged.
To translate: if the bond purchases are not sterilised, then they would come under the heading of genuine quantitative easing, like the Bank of England and the US Federal Reserve.
This, and the talk of "new modalities" is significant. It means that future bond purchases - if they happen - will not involve the Securities Markets Programme (SMP). They will be qualitatively different, and perhaps quantitatively different as well. Mr Draghi said they would involve short-dated debt - not the longer term government bonds included in the SMP. And they will be "of a size adequate to reach its objective". That could be a lot bigger than the "limited and finite" purchases we saw under the SMP.
My reading of all this is that Mr Draghi wants to bring the bond purchasing programme back into the fold. He wants it to form a coherent part of the ECB's monetary policy machinery, rather than an awkward add-on, like the SMP.
That is important for the future - even if the "modalities" are vague, and the conditionality for governments is a necessary first step.
It is also important that the ECB has promised to address investors' concerns about seniority (for an explanation of which, see my Saturday blog). It's news, even if it is completely unclear, right now, how the ECB could take a hit on its future bond holdings when it had previously suggested this was not legally possible.
The bottom line is that the ECB has not offered as much as many in the markets had hoped for. But Mr Draghi has laid down some important markers for the future which should not be ignored.
Posterity might judge the ECB's performance more kindly than investors do today. Then again, for most in the financial markets, posterity is not exactly a big concern.
Update 1850: The markets are indeed deeply disappointed by what the ECB has done.
The euro is down and the interest rate on Spanish and Italian 10-year government bonds have each risen by around a third of a percentage point since Mr Draghi first opened his mouth.
Dario Perkins, at Lombard Street Research, says the ECB "spectacularly under-delivered".
Marchel Alexandrovich, at Jefferies, is even more damning. He thinks the insistence on a country applying for formal support sends a dangerous signal to the markets.
"What Draghi has basically indicated is that the problem in the bond markets has to get considerably worse before the ECB steps in to help.
"This is an incredible turn of events. Forget pre-emptive action, instead Draghi had just presented a clear vision of how the crisis is now set to intensify.
"Draghi is playing a very dangerous game here. Prior to today, the markets hoped a bailout would not be necessary, now they have been told it is inevitable!"
Others are not quite so depressed about Mr Draghi's performance. That might be because they had lower expectations to begin with. But he has certainly hit the ball back into the government side of the court.