The ECB puts a sting in the tail

European Central Bank Image copyright AFP
Image caption The ECB will is now in a position to defend the euro

Former US Secretary of State Henry Kissinger famously asked: "If I want to talk to Europe, which number do I call?" For the past three years, global financial markets have been asking a similar question: "If I want to destroy the euro, who's going to stop me?"

Surveying the carnage in European financial markets, investors wanted to know who, or what, ultimately stood behind this currency. When push came to shove, who was ultimately going to be there, with deep pockets, to hold the whole thing together.

Governments have tried, and failed to take on this role, while the European Central Bank (ECB) has tried very hard to avoid it. But yesterday, to an important extent, it gave up trying.

Yes, the support the ECB president described will come with conditions. Yes, it has come pretty late in the day. And yes, the president of the German central bank has a point when he suggests that the central bank is putting its independence at risk with this "unlimited" pledge, and potentially building up trouble for the future propping up governments.

But whatever you think of the ECB's plan, and however sorry you are that they did not come up with a better name ("outright monetary transactions" really is awful), it does provide an answer to that crucial question I raised at the start. In effect, the ECB has said, if governments are doing the right things, the central bank will do its bit to save the euro.

The economic blogger for the Economist says the ECB has acted in time to save the euro. "Whether it has acted in time to save the euro economy remains to be seen."

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Media captionBBC economics editor Stephanie Flanders: "We are still looking at a very difficult time for the eurozone."

Partly because it has come so late, the ECB action will not prevent countries like Spain from having a pretty terrible few years. As I said on the Today programme this morning, if the bank, with all its internal misgivings about the scheme, messes up in the implementation it might not save the euro either.

But, for the first time since the start of the crisis, the eurozone - on paper at least - has what Americans would call a catastrophic insurance policy.

The ECB will not protect Spain, or Portugal, or Italy from being discriminated against by the markets - from paying higher interest rates to borrow than, say, Germany. But if Spain and the rest are able to keep their populations on the side of doing what it takes to stay in the euro, the ECB is saying it will not allow them to be forced out.

That is what Mr Draghi meant when he talked of the OMT programme as backstop against the "tail risks" hanging over the euro system - the extreme scenarios, like the whole thing blowing apart.

The new ECB scheme has a chance of playing this role, because, unlike the European rescue facilities like the European Stability Mechanism, the purchases are not limited in advance. And because, unlike the previous ECB bond buying programme, the bonds that the central bank buys will not get special treatment in the event of any debt write-downs, as happened in Greece.

To repeat what I said in an earlier blog, if the ECB had said this a year ago, we probably wouldn't be where we are today. The delay has made it harder for any rescue plan to succeed. And it has certainly raised the costs of the crisis for the real economy.

Sovereign governments could still mess things up. Heaven knows, they've done it before. But if you want to destroy the euro - the second most important central bank in the world now says it will be there to stop you.