On Thursday, July 26, the President of the European Central Bank (ECB), Mario Draghi, sparked a global stock and Spanish/Italian bond rally with the statement that he would do “whatever it takes” to keep the eurozone intact. The widely accepted interpretation of that statement is that the ECB will purchase more of the sovereign bonds of countries like Italy and Spain, where borrowing costs (interest rates) have jumped to unsustainable levels. This action by the ECB will help to reduce interest rates, just as the similar action by the U.S. Federal Reserve Bank in the purchase of U.S. Treasurys and mortgage-backed securities has brought U.S. interest rates to historic lows.

One week later on August 2, Draghi disappointed the markets because no immediate action from the ECB’s Governing Council meeting in Frankfurt was forthcoming. However, the Council did vote unanimously to issue a statement, announced by Draghi himself, saying that “The euro is irreversible”, and that the Council will do “whatever it takes to preserve the euro as a stable currency”.

With the delay in action, Draghi may be setting the stage for Spain and Italy to formally ask the European Financial Stability Facility (EFSF) for a bailout, which will trigger the EFSF to buy their debt at auction. Spain and Italy are engaged in their own delay strategy because going to the EFSF for a bailout will force them to accept an adjustment program from the European Union, European Central Bank, and the International Monetary Fund. In essence, if they ask for a bailout, they will be surrendering a significant degree of their sovereignty in terms of how they run their fiscal and monetary policies.

In order for the eurozone to survive, it will need to become a monetary federation, like the United States Federal Reserve, with central control and authority to issue and manage debt and mandate policy.

Prime Ministers Mariano Rajoy of Spain and Mario Monti of Italy may be buying political time before they agree to the structural changes and austerity policies that would be required to initiate a bailout. Germany, with Europe’s largest and strongest economy, would most likely be pleased if Spain and Italy would accept the bailout conditions.

Draghi’s delay may prove to be effective if he can marshal the political support to conditionally purchase more of the debt of struggling member nations. If his delay does not result in any relief, then the troubles in Europe will continue to be a drag on financial markets and global recovery. Only time will tell if Draghi’s decisions will make him the eurozone’s hero in a time of crisis, or the first sacrificial goat of the European Central Bank.

In what may be telling market action, European stocks and Spanish/Italian bonds rallied strongly on August 3 and into the week of August 6, as investors may have signaled approval of Draghi’s strategy.