Traders were disappointed with ECB president Mario Draghi’s statement last week because he failed to get his bazooka out and tackle the sovereign debt crisis head-on like some kind of economic Rambo.
But those with memories that go back further than a week — before he appeared to be donning the red bandana and offering vigilante intervention — will not have been surprised. They should also agree that he is doing the right thing.
Faced with a similar situation last year, albeit with smaller numbers at stake, Draghi’s predecessor, Jean-Claude Trichet, played a game of stand-off with Europe’s politicians in an attempt to force them to sort out the region's sovereign debt mess.
Politicians’ first concern is with their own electability, not in resolving problems so bad that the treatment required is likely to leave them out of office. Hence they are always happy to delay and delay some more, hoping that if the problem doesn’t go away, at least it will be someone else's by the time it becomes too big to ignore.
Draghi's suggestion two weeks ago that something might happen was the right thing to do. Traders jumped to conclusions, but the fact that a veritable industry has sprung up to scrutinise every utterance of central bankers is not the fault of central bankers.
What he achieved through his comments was a calming of very volatile markets. But he was never going to be able to live up to the expectations. Sure enough, some of the rally was unwound as the reality sank in.
Immediately, Draghi faced charges of a loss of credibility. These were ludicrous. His mandate is to look after interest rates and stability as far as he can with the few tools available at his disposal. His job is not to backstop the entire eurozone and all those who invest in it, in place of politicians who are too slow and too meek to take the pain and legislate the way they ought to.
The ball now lies firmly in the court of Europe’s elected officials to demonstrate that the European Stability Mechanism and the European Financial Stability Facility are sufficiently well enough constructed to solve Europe’s debt crisis. That will be a big task, but if they — and the politicians — are found wanting, Draghi will not be the one to blame.