European Central Bank President Mario Draghi knows how to influence markets, and so he did last week. After months of staying out (some would argue intentionally absent), he stated the ECB would do whatever it takes to save the euro. He had similar effects the previous few times he spoke or acted (LTROs, etc.). The problem before was that he stopped or went away, and politicians never followed through with a clear roadmap showing markets how the euro gets to be sustainable. The problem now is that it is not yet clear what he means or what the plan is.

As we stated before, the direction of the debate and policy is the correct one, as it leads to financial and fiscal integration to complement the monetary union. The problem remains the lack of clarity on how it would be done, and how fast. There is a clear conflict between the pace and level of detail markets expects and what politicians have shown capable of delivering. Most of what needs to be done requires serious political agreements that should lead to complicated legal changes in treaties and laws, not to mention the effects on nationalistic sentiment from surrendering “sovereignty” to the union. No wonder there has been skepticism and volatility.

Draghi had been fairly quiet for months, supposedly waiting for politicians to do the necessary work: adjustments and reforms locally, agreements and treaties regionally. In exchange, politicians stayed in the realm of statements and aspirations, when not making serious policy blunders (like in Spain).

Nobody doubts that the transition to euro-sustainability requires heavy lifting by the ECB balance sheet. But it cannot happen in a vacuum. If banks were to be recapitalized without over-bearing their sovereigns, a centralized bank regulator needs to exist. If sovereigns can enjoy union-low funding costs (thanks to fiscal integration), fiscal adjustments and reforms have to happen. If Italy and Spain were to need funding (also known as a bailout), then the available funds are not enough and the ECB has to get involved, which requires treaty changes or an original legal interpretation of current laws.

When and if Spain and/or Italy need the EU to fund them, only the ECB balance sheet is large enough. Politicians can decide to grant the ESM a banking license, which would allow it to leverage the 500 billion euros it would have. The 500 billion euros could be the first loss in that funding structure, which means the ECB or other bondholders would not bear the first loss if Italy or Spain where to default (or marking to market losses for that matter). This should work, but EU lawyers (especially at Germany’s constitutional court) would oppose unless laws are changed.

So, has Draghi rushed? Will there be a whole set of announcements that set a roadmap for most of the above soon? Will Spain ask for a bailout sooner than expected (the government has prefunded its needs for a couple of more months)? Did he mean that the ECB would ‘eventually’ do whatever it takes, but not necessarily now?

These are all valid questions that only the policy makers involved can answer. Their track record is so mediocre that expecting a serious leap forward would be naïve. If it was not for Draghi’s strong statement, the most likely scenario would have been a continuum of patches (Spain using part of the bank bailout for fiscal purposes while the EU goes slowly through treaties, etc.). But Draghi deserves the benefit of the doubt, and that is how markets are treating his statements.