November 10th, 2011
07:45 PM GMT
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London (CNN) - He's been dubbed 'super Mario' but the man at the helm of the European Central Bank might as well be 'superman' such is the monumental responsibility that rests on his shoulders - a responsibility that doesn’t really fall into his job remit either.

As Italy successfully braved the bond markets this week with a €5 billion sale, traders say the country had much to thank Mario Draghi, its former central bank chief, for.

At 6.08%, the Italian Treasury had to offer a whopping 2.51% more than when it last sold bonds on October 11. Having said that, Italian 10-year bond yields traded lower than their recent euro-era highs. That means Italy is out of the panic zone for now at least.

Why? Because the ECB intervened. Stephen Gallo of Schneider FX estimates that the ECB bought €1.4 billion of Portuguese, Spanish and Italian bonds. Around two thirds of the amount, he says, was spent on buying Italian ones.

Throughout the sovereign debt crisis the ECB has resisted playing a bigger role in bailing the eurozone's troubled nations, mainly because it can't.

The bank's job is to keep prices stable at or around 2%. Its independence is crucial to the credibility of the single currency. Yet the Frankfurt-based bank seems increasingly caught between a rock and a hard place.

Its members have racked up crippling debts, which they can’t hope to pay back for the moment. Under such circumstances many a central bank would be tempted to stuff the economy with freshly minted money to help pay the bills and spur growth.

By the time the debt is due the ensuing pick up in inflation means it's worth a fraction of what it once was, besides growth is back and the solvency crisis is averted.

The ECB - a one-size-fits-all central bank for 17 countries - can't do that however.

Mind you, if it does nothing it won't have a currency left to regulate.

So far its best hope is to make sure eurozone countries in difficulty don’t get squeezed out of the bond markets by sky-high yields.

The ECB can bring down the yield - or interest investors demand - on Italy's debt by buying up bonds in the secondary market to make room for new issuances.

It later 'sterilizes' such purchases by vacuuming up the extra euros floating about via various means such as taking in short-term bank deposits.

Since August, the ECB has spent more than €100 billion buying Italian and Spanish sovereign debt, thought it does not publish a breakdown of its expenditure on each.

It is somewhat fortuitous for Italy and the eurozone that the new man at the ECB's helm hails from the monetary union’s biggest weak spot of the moment.

Since replacing Jean-Claude Trichet as president, Draghi has sped into action at alarming speed. He's already embarked on a rate cutting cycle and stepped up the bank’s support for struggling nations.

Which begs the question: does this man with intricate knowledge of the next eurozone economy to crack, know more than he is letting on?

On his first week in the job, Draghi warned eurozone governments that the ECB was not to be viewed as a "lender of last resorts."

The Italian has made it clear the ECB’s bond buying policy must remain deliberately vague – just like Trichet’s incomprehensible choice of language.

soundoff (11 Responses)
  1. Sam

    Does this reporter not know what "Super Mario" references?

    November 11, 2011 at 5:05 am |
  2. Bernard

    Remember, you have to save the princess dozens of times, before having a good ending.

    November 11, 2011 at 5:21 am |
  3. enkephalin07

    He probably doesn't; there's a goldmine of analogy so suited to the situation and speculated character that he just didn't make use of. He obviously has no future in reporting on mass-merchandized video game franchise mascots worth more than he'll ever be.

    November 11, 2011 at 5:23 am |
  4. Godwin King

    the ultimate solution to the debt crisis in these European countries is at www dot tradeexchangeghana dot net .you can get a free solution proferred to these challenges at www dot tradeexchangeghana dot ne

    November 11, 2011 at 6:36 am |
  5. Zoidberg, MD


    Remember, you have to do the princess dozens of times, before having a good ending.

    November 11, 2011 at 9:40 am |
  6. dom

    the princess is in another castle

    November 11, 2011 at 10:24 am |
  7. desert voice (troubledgoodangel or Nathanael)

    Berlusconi should be kept in Cuckoo's nest. Let the Super Mario (Skorzeny) rescue him, and put him back in charge.

    November 11, 2011 at 10:36 am |
  8. rooperk

    Mario Balotelli is the real Super Mario :D

    November 11, 2011 at 11:20 am |
  9. Beppe

    Super Mario = Mario Balotelli

    November 11, 2011 at 1:09 pm |
  10. kuratowa

    Bernand and Zoidberg,

    If he's really Mario, he'll know there's a warp pipe that'll take him right to the princess in three steps from Level 1. Let's hope Italy has warp pipes.

    November 11, 2011 at 4:19 pm |
  11. Mr. Peace

    Super Mario Monti is on the payroll of Goldman Sachs, he is also a key member of the Bilderberg group and theTriLateral Commission. Next planed steps for Italy will be the wholesale looting of the Italian economy and bankster privatization resulting in mass unemployment, wage cuts, pension thievery, and public services fire sales.

    November 11, 2011 at 9:19 pm |

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