Draghi’s August ECB umbrella

Draghi’s comments at the ECB press conference are yet another attempt to buy time without deploying the bazooka that the markets have been looking for a long time now. However, as unpalatable as it will be to make use of it, it does give Spain and Italy an ultimate parachute should things turn really ugly. This should be seen as a positive development and a clear message that if all else fails, the Euro will be saved when a (fiscally responsible) member state in trouble asks the ECB for assistance, and this will be given.

The problem is still the same, markets will test nations and the ECB to the brink, and this could mean Spain losing market access in the next weeks, at which point the market will test exactly how this ‘bailout of last resort’ works in practice.