Today they will learn whether this is wishful thinking.
"The markets have come to believe wrongly there is a grand master plan to save the world," said Andrew Roberts, credit chief at RBS. "They have built up enormous hopes that a deal will be struck to unlock the ECB's balance sheet. They will be extremely disappointed if there isn't a big acceleration in bond buying."
The ECB does not have a clear mandate to act as lender of last resort for sovereign states. "The bank is very conscious that it is a European institution and has to abide by EU treaty law, and Article 123 of the Lisbon Treaty prohibits the financing of governments," said Julian Callow from Barclays Capital.
What the ECB does have is authority to backstop Europe's €23 trillion banking system – by far the biggest in the world. It is doing so with a ballooning balance sheet of €2.4 trillion or 26pc or eurozone GDP.
It has increased bank support by over €500bn since March, including $51bn in US dollars for 34 lenders under the latest swap arrangement with the US Federal Reserve.
Frankfurt veterans say Thursday's meeting of the Governing Council will look for ways to save banks, not states. The ECB may lengthen maturity on loans to two years, and relax rules on collateral to allow use of low-grade assets.
Interest rates will almost certainly be cut a quarter-point to 1pc. But monetary conditions are deteriorating so fast as a credit crunch engulfs large parts of the eurozone and M3 money contracts (month-on-month) that small cuts may not be enough to keep pace with events. "Passive tightening" is well under way.
"The ECB should launch proper quantitative easing to offset the obsessive fiscal tightening in the eurozone," said Dario Perkins from Lombard Street Research.
Mr Draghi gave ambiguous hints last week that the ECB might come to the rescue once EU leaders had agreed to a "fiscal compact", with iron-clad mechanisms to assure that no eurozone state ever again flouts budget rules or endangers the system. "Other elements might follow, but the sequencing matters," he said.
The question is whether the fudged plan unveiled on Monday by German Chancellor Angela Merkel and French president Nicolas Sarkozy bears any resemblance to Mr Draghi's "fiscal compact", or even whether it can win support of all EMU states.
Hungary's EU commissioner Laszlo Andor said the "Merkozy" proposal for automatic sanctions against fiscal sinners was "a joke", saying fiscal union "needs collective, democratic decision-making".
The package of measures is a fiscal union in name only. There is no joint debt issuance, no shared budget, and no fiscal transfer. It is a charter of discipline, a revamped Stability Pact with lipstick.
Mrs Merkel has backed down on her demand that budget violations be justiciable before the European Court. Sanctions will be imposed by EU ministers, but France and Germany will each have a veto. The rest is flannel.
"The deal is clearly not enough to give political cover to the ECB and allow it to stabilise the bond markets," said Fredrik Erixon, head of the European Centre for International Political Economy in Brussels.
Mr Erixon said the ECB has the legal power under various treaty articles to impose a cap on bond yields – such as Article 3, which obliges all EU bodies to support the union's objectives and promote "economic cohesion". "Are they really going to stand back and allow Europe's neck to be broken?"
Crucially, the balance of power has shifted within the Governing Council, with the German purists increasingly isolated as even the Dutch start questioning the ECB's scorched-earth strategy. "The power struggle is already over. It has been won by those who want the ECB to act as real central bank, but they need political cover."
Mr Erixon said EU leaders should "end the charade" that their rescue fund (EFSF) has the firepower to handle the triple crisis in Italy, Spain and France. "Member states simply don't have the willingness to set aside the kind of money that would be necessary. The key task for EU governments now is to dress up the euro bride for the ECB and the International Monetary Fund."
Mr Draghi's words today will be parsed carefully by investors searching for signs that the central bank is willing to go nuclear. "If the ECB does not step in as lender of last resort, markets are going to react very abruptly," said Professor Giuseppe Ragusa from Rome's Luiss Guido Carli University.
Jitters are already reappearing. Italy's 10-year bond yields spiked back up to over 6pc on Wednesday, though still far below the extremes of late November. Nor is it clear that the EU's policy of further budget austerity is the right medicine at this stage.
Standard & Poor's warned on Monday that Europe's contractionary policies increase the risk of downgrades, even for the AAA core. "As the European economy slows, we believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, eroding the revenue side of national budgets."
Italy risks spiralling downwards. Industrial output slumped 4.2pc in October. "The austerity is counter-productive. The economy will contract even more next year, so we may be chasing our tail," said Prof Ragusa.
Mr Callow from Barclays Capital said there is no way to restore global confidence in the euro project until the eurozone equips itself with a treasury and the apparatus of a state. "You cannot resolve this crisis without a federal eurozone, but you are dealing with historic nation states that are not used to being treated like US states, and it would be democratically unaccountable. So how do you get there?"
This week will not provide the answer.
The Telegraph
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