The constrained Queen

The ECB is like a Queen on a chessboard constrained by other pieces of the same color. It is the most powerful piece in the game, but under its rules it cannot move and it cannot take. It is unfair of critics to demand from it the kind of unbridled emergency support a central bank can and should offer inside a true political union. There must be political cohesion backing the radical independence of such a central bank, otherwise its management will be challenged by the legislators.

In this regard, there are three key moments in Mr. Mario Draghi's first press conference as president of the ECB, last thursday (video here). First, at 24'22", answering a question by an Italian journalist on the current rates of the Italian bonds:

"The first and foremost responsibility with maintaining financial stability and orderly financial conditions lies with national economic policies. So it's really in a sense pointless to think that sovereign bond rates could be stably brought down for a protacted period of time by outer external interventions. The main pillar of this is the national economic policy response, and this is made up by two components. First, order, put your public finances in order; second, undertake structural reforms, so that competitiveness is enhanced and thereby growth and job creation."

Then, at 26'31", to a British journalist, about being ready to assume the role of lender of last resort in order to avoid a breakup of the Eurozone:

"What makes you think that to become the lender of last resort for governments is actually the thing that you need to keep the Eurozone together? (...) No, I don't think that is really in the remit of the ECB. The remit of the ECB is maintaining price stability in the medium term."

And finally, at  36'46", to a French journalist, about buying government bonds:

"[The financial crisis of 2008/09] increased risk aversion by all by the investors worldwide. And made their analysis I would say more perceptive of the different risks in different countries and that is how the explosion of sovereign spreads started. Now, as we had what the economists call the undershooting for a long period of time, we may now have overshooting. But the way to react to this is not so much to count on external help. That could alleviate the temporary market pressures, but it is actually the real answer to count on the countries capacity to reform themselves with the right economic policies."

Does that sound like a man ready to dump his mandate and buy tens of billions of euros in Buoni del Tesoro Polianuali in a matter of days, in order to stem the coming panic in the bond markets? Maybe when the Italian 10 year yields approach Irish levels (before Christmas?). Then we may see the Queen turn into a Knight. But he will have to answer to the German King.