Jeff Horwich: When I first sat down this morning, European stocks were heading for another lousy day. But then a bolt out of the blue: the head of the European Central Bank said the ECB will do "whatever it takes" to preserve the euro. Mario Draghi's comments were like a cortisone shot of confidence for investors. For more on what muscle the ECB can really bring to bear here, Marketplace London bureau chief Stephen Beard is with me live. Hello, Stephen.
Stephen Beard: Hello Jeff.
Horwich: What specifically did Draghi say that markets are so excited about?
Beard: Well not a lot really. He hinted at a new, more activist role for the European Central Bank in combatting the crisis. The markets got excited because investors now believe the only institution that can really stop this crisis in its tracks is the European Central Bank. It's the only body with the firepower to stop the speculation against Italian and Spanish government bonds and against the euro itself.
Horwich: So this is not a sure thing, but if the ECB stepped in, what precisely could it actually do?
Beard: It could behave more like the Fed and print more money, pump a lot more cash into these government bond markets. That would certainly bring down borrowing costs in Spain and Italy. The ECB could give the bailout fund a banking license so that the fund could borrow really huge sums of money to do the same thing, to buy directly large quantities of Spanish and Italian government bonds. The ECB could in theory do these things, but it won't be easy.
Horwich: Right. What obstacles might be in the way?
Beard: Germany, in a word. The Germans don't really like this. They fear that this would let the Southern Europeans off the hook. It would relax the pressure on the Italians and the Spanish and the Greeks to reform their economies and get their public finances into shape. The Germans say without radical, even painful reform in these countries, the problem will reemerge and the crisis will resume at a later date.
Horwich: Marketplace's Stephen Beard, thank you very much.
Beard: OK Jeff.