Mr. Draghi’s refusal to be more specific today is an illustration of the political battle that is taking place within the eurozone and of the tensions that exist within the ECB’s governing council, where each eurozone member state has a vote.
The battle finds two camps pitched against each other with fundamentally opposing views on how to solve the debt crisis. One camp believes that supplying fresh money out of the ECB's printing press to buy the bonds from struggling countries, possibly even an unlimited amount, is necessary to bring down soaring interest rates that are taking countries to the brink of insolvency. Southern eurozone members, including Spain, Italy, and Portugal, but also France, subscribe to this perspective.
The other camp consists of Germany, Austria, the Netherlands, and a number of other northern European countries, who believe that starting the printing press will not only induce inflation, but also diminish the pressure on eurozone governments to cut spending and reform their uncompetitive economies. Northern members also are opposed to all attempts at pooling debt, making the whole of the currency union liable for the arrears of individual member states.
Earlier hopes dashed
Just a week ago, it had seemed that this fundamental disagreement had been settled.
On July 26, Draghi told the Global Investment Conference in London, that, “within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”