Did Draghi act on his own?

By Sober Look

We’ve all heard ECB’s president Mario Draghi’s pledge to do "whatever it takes to preserve the euro."  Risk assets have rallied dramatically on this announcement. Spanish 10-year bonds moved up over 7% in price for example.

Everyone of course assumes that the ECB has put together some type of plan to change its policy course. But did this statement come from the ECB (similar to the announcements of the FOMC) or is Draghi trying to do this on his own? Did the Governing Council of the ECB actually agree on this policy move of incremental asset purchases?

Apparently this announcement came as a total surprise to some at the ECB.

DER SPIEGEL: – … experts at the central banks of the euro zone’s 17 member states had no idea what to do with the news. Draghi’s remark was not the result of any resolutions, and even members of the ECB Governing Council admitted that they had heard nothing of such plans until then.

This is a bizarre action by a head of a central bank – a statement that is interpreted as a policy shift that apparently has not been vetted by the governing body. It seems that Draghi, possibly without consulting his colleagues, has succumbed to political pressures.

DER SPIEGEL: – Now Draghi is apparently prepared to lend a hand to the hapless politicians. Under his plan, which essentially creates a new form of cooperation between governments and monetary watchdogs, both of Europe’s bailout funds — the temporary European Financial Stability Facility (EFSF) and the permanent European Stability Mechanism (ESM) — and the ECB will intervene jointly in the bond markets in the future to bring yields down.

Now the ECB has been painted into a corner. They can either follow Draghi’s lead without fully agreeing with him or they pause to deliberate on this matter and disappoint the markets. Both outcomes seem rather unsettling.