Here is the final paragraph (my emphasis) of Asmussen's commentary on Draghi's suggestion that yields may be capped (h/t FT Alphaville, German translation courtesy of Joseph Cotterill):
We’re acting within our mandate, the priority of which is aimed at guaranteeing price stability for the euro area as a whole. Only a currency about which there are no doubts to its survival can be stable. That’s what we’re working for at the ECB.So much for the "single mandate" of the ECB. Inflation is no longer its primary concern. If the Euro collapses, the ECB has no mandate, and indeed no reason to exist. So its absolute priority is preservation of the Euro at all costs. And if that means loading its balance sheet with everybody's junk, printing money like it is going out of fashion, bailing out sovereigns, banks, businesses and individuals, IT WILL DO IT - however much the Bundesbank objects and whatever its nominal mandate says.
So is the Euro really at risk? There are conflicting views on this. In my extensive discussions with Freegold supporters recently, they refused to believe that the Euro could collapse. They saw it as completely independent of the countries that use it: in their opinion, the Eurozone crisis is no threat to the existence of the Euro, because the Euro would continue to exist and be used for international trade even if all the Eurozone countries stopped using it domestically. Frankly I think this is naive. The Euro is a creation of the countries that use it. If they were all to stop using it, it would have no purpose - it would be simply a failed currency experiment consigned to the dustbin of history. The Freegolders also believe that the Euro is immune to hyperinflationary currency collapse, because the ECB's single mandate means that it would never monetize sovereign debt. This is arrant nonsense. The ECB has already monetized significant amounts of the debt of Greece, Spain and Italy both directly through the SMP programme and indirectly through the LTROs, and Draghi's proposal could monetize a whole lot more. If the single mandate is being reinterpreted to mean currency survival rather than price stability, the Euro is no more immune to hyperinflation than any other currency. I'm afraid I do not share the confidence of Freegolders (and to be fair, many other people with strong emotional attachment to the Euro project) that the Euro cannot collapse if the Eurozone fails.
At the opposite end of the scale are people who clearly do think the Euro is at risk. Finland was reported as considering "all" options for the Eurozone crisis - including the end of the single currency. Others, too, have openly debated the possibility that the Euro may fail, and there is some evidence that speculators are beginning to bet on its failure. This is potentially disastrous, and in my view explains Draghi's apparent volte-face on bond yields. Speculative attacks can cause exchange rate pegs to fail and currencies to collapse. The ECB leadership will not have forgotten the collapse of the Euro's predecessor, the first Exchange Rate Mechanism (pdf), under sustained speculative attack.
Whether or not the ECB leadership think the collapse of the Euro is a realistic possibility, they are certainly not saying so. In fact they are doing their best to talk it up. And it may work. Giving speculators a clear message that the ECB really will do whatever it takes to support the Euro may frighten them off: after all the ECB is a central bank, so it has more than enough resources to fend off even sustained speculative attacks. But it depends whether the ECB really has the freedom to use its resources. I have to say that at present, it doesn't look as if it has.
Recognising that the ECB's mandate is first and foremost to protect the Euro frees it from the chains of inflation targeting and could permit quasi-fiscal intervention (such as bond-buying to cap yields) within its mandate. And that does seem to be how the ECB leadership is thinking. But the EU leadership, the Bundesbank and as far as I can see most of the press and the economics profession don't get it. So the hawks among them squawk about "moral hazard", "market discipline", "fiscal consolidation". And the doves coo about ECB recapitalising banks and buying sovereign debt to ease fiscal pressures and halt the austerity death spiral. It's all irrelevant. The ECB fundamentally doesn't care if half the countries in the Eurozone collapse, provided the Euro continues: but if their collapse would threaten the Euro's survival, as it seems that it might, the ECB will equally happily buy all their debt, public and private, and recapitalise their banks, if that is what it takes to preserve the single currency.
If the EU leadership, the Bundesbank and other key players wish to ensure the Euro survives, they really must give full support to the ECB. Undermining the ECB leadership and attempting to restrict use of ECB resources with threats of legal action, as some of them are doing, is an open invitation to speculators to test the real ability of the ECB to defend the Euro - and I have no doubt that they will accept that invitation with alacrity. It's unbelievably stupid.