German finance minister Wolfgang Schaüble has more or less endorsed ECB head Mario Draghi's statement yesterday that the ECB "will do what it takes" to save the euro and, added Draghi, "believe me, it will be enough." The markets are apparently interpreting this as a promise by the ECB to buy beleaguered sovereign debt. Pierre Moscovici, while taking care to emphasize the "independence" of the ECB, said yesterday that it appeared direct market intervention was on the table.
So have we turned a corner in the euro crisis? Has the ECB decided to start the printing presses running overtime, and have the Germans decided to stop warning about "moral hazard," "encouraging profligacy," etc.? The proof will be in the pudding. But would you want to speculate against the possibility that the ECB might in fact be ready to use the big bazooka and not just run at the mouth? (On the other hand ...)
If the change of course has in fact occurred, we can retrospectively attribute it to two things: the imminent disaster that Spain faced this week and the report that austerity hasn't worked out so well for the UK, which turned in a dismal 0.7% GDP shrinkage last quarter. And even Germany has begun to feel the bite of the global slowdown. So the Germans may have blinked. And the Dow is flirting with 13,000 again. Everybody's happy, what could possibly go wrong?