Draghi's message for artful euro-dodgers
There was a little help for the real economy from the European Central Bank on Thursday, and more than expected to help ease the credit crunch facing Europe's banks.
The ECB president also offered some backing to those who worry that enforcing higher capital standards on banks will get in the way of a European recovery. But he didn't lend much of a hand to European leaders attending tonight's summit.
In his remarks, Mario Draghi poured cold water on the more artful schemes to enlist the ECB's balance sheet in the battle to rescue the euro.
He said the ECB - and governments - needed to respect the spirit of the Maastricht treaty, which bans the ECB from financing national governments. You might be able to find a clever legal way to channel money, indirectly, from central banks to governments; but that would not make it right.
This will come as an unwelcome surprise to the artful euro-dodgers, also known as EU officials, who have been thinking up ways to do precisely that.
Getting national central banks to lend to the International Monetary Fund, for example, has been widely discussed - as a way of boosting the IMF's capacity to be part of a larger eurozone "firewall".
Germany was said to be more comfortable with this idea, since it didn't involve any central bank financing governments directly, and it would formally keep the credit risk off the balance sheet of the ECB.
Mr Draghi was asked explicitly about this possibility and he said it would only be OK if the money lent to the IMF were then lent on to countries like China or Indonesia - outside the eurozone. If the extra funds were lent only to eurozone countries, the ECB president said, he would consider it a violation of the treaty and therefore illegal.
This distinction is a bit odd, from an economist and some-time investment banker who knows full well that money is fungible. After all, the IMF might formally lend the extra money to Indonesia, but then use the spare resources, freed up by that fresh financing, to lend more to Europe. But that is a side point.
The big news out of this press conference is that he doesn't seem to agree with ANY effort to involve the ECB's balance sheet in an effort to ease financing constraints for governments. That sounds very bald. But once you focus on the spirit of the treaty, you don't leave a lot of wiggle room.
Does this mean that the ECB is ruling out acting as a "lender of last resort" for the eurozone? Depending on your definition of "lender of last resort", my answers to that question are: yes, no and not yet.
Yes, he seems to have ruled out including the ECB balance sheet directly - or indirectly - in any explicit "firewall" to protect the euro, for example by having the ECB lend to the emergency rescue fund, or the IMF.
But no, he has not ruled out the ECB acting as a lender of last resort for European financial institutions - particularly in the crisis economies. Indeed, by offering longer-term lending to banks and significantly easing the collateral requirements, he has signalled that the central bank is willing to do a lot more.
As I have pointed out before, where a national central bank presides over one national banking system, you can draw a distinction between propping up solvent - but illiquid - banks - and propping up governments.
But where there is one central bank and 17 national banking systems, you cannot draw that kind of line. (Indeed, in the current climate, you cannot really be sure those institutions are solvent, even if you are demanding collateral.)
In these circumstances, propping up banks is also helping to prop up countries, because the ECB is directly or indirectly providing external liquidity to national financial institutions that the markets are no longer willing to provide. And propping up countries, in the dire circumstances in which the periphery countries now find themselves, is not so very different from propping up governments.
Put it another way: by expanding its emergency liquidity facilities, the ECB signalled that it was willing to keep acting as a lender of last resort for banks - and by extension, that it was willing to keep all 17 of the eurozone's national financial systems afloat, while the sovereign debt crisis is resolved. That is not surprising, but it is important.
And my final "not yet"? That refers to the possibility that the ECB will undertake large scale bond purchases, for "monetary policy" reasons, which would also ease the pressure on national governments.
Mr Draghi said flatly that the ECB had "never" discussed capping the cost of borrowing - the sovereign bond yield - at a certain level, in Italy and anywhere else.
This will come as a shock to the many journalists who have written that this was indeed being seriously considered within the bank. But it would have been surprising if the ECB had opted for this kind of promise, which - once offered - would remove all incentive for governments to take tough decisions.
As the press conference made clear, government action to restore their public finances - both short and long term, national and eurozone-wide - is still the top priority - for the ECB as for Germany. Though he also said "the speed" with which the new rules could be implemented was important, not just their credibility. Some will see that as a quiet criticism of Chancellor Merkel.
However, Mr Draghi also made clear that economic growth was critical - and it wasn't looking very good.
Finally, he chose to repeat the comment about the bond purchase programme last week which I found most interesting at the time, that they were "not eternal and not infinite".
The new ECB forecasts announced today suggest inflation could be well below 2% in two years' time.
The deteriorating economic outlook and the state of high anxiety in financial markets could yet pave the way for extensive bond purchases - just don't expect them to come right now, and certainly don't expect them to come under the heading: "lender of last resort for the euro".