BUSINESS
11/13/2014 03:29 pm ET Updated Nov 13, 2014

Tim Geithner: The 3 Words That Saved The Euro Were Ad-Libbed

Thomas Lohnes via Getty Images

"Whatever it takes:" Those three words, uttered by European Central Bank president Mario Draghi in July 2012, are some of the most important words ever spoken in Europe's history. They may have rescued the European monetary union.

And they were ad-libbed.

That's the claim of former U.S. Treasury Secretary Tim Geithner, according to a transcript of an interview he gave in preparation for his recent memoir. The transcript was obtained by the Financial Times, which first reported Geithner's claim about Draghi's remarks.

According to Geithner, when Draghi pledged in a speech in London to do "whatever it takes" to deal with Europe's sovereign-debt crisis and "preserve the euro," he was making it up as he went along. Draghi, Geithner says, hadn't cleared his line-in-the-sand statement with anyone before he made it and wasn't even sure what policies he could or would use to back it up.

Geithner, through a spokeswoman, declined to comment to The Huffington Post. An ECB representative also declined to comment.

This is, of course, only Geithner's version of events. The Telegraph's Ambrose Evans-Pritchard is skeptical. Evans-Pritchard writes that Draghi did consult with German officials –- the European Union's de facto center of gravity –- before announcing the bond-buying program that backed up his words a month later. A senior official at the German Finance Ministry even bragged a few weeks before Draghi's comments that “nothing flies in the eurozone right now without our permission.” That would seem to include ultimatums promising to ensure the integrity of the European Union itself.

The German Finance Ministry did not return a request for comment.

The German official's bluster could be just that, but there is a lot of truth to it. One of the main factors, if not the main factor, constraining Draghi's response to the European crisis was Germany's refusal to offer any aid to countries like Greece and Italy without harsh, often self-defeating terms.

If Geithner is correct, if Draghi really did spring his "whatever it takes" line without consulting the Germans, then Draghi was very clever to do so. It put the Germans in a box, forcing them to accept a public statement they likely would not have agreed to had it been pre-negotiated.

Things in Europe would have gotten much, much worse if Draghi had not made his statement. And Draghi likely knew that there was a good chance he could make things better simply by making that statement, even if he had no plan to back up his words at the moment he uttered them.

Draghi's statement, and the bond-buying policy that followed, had a huge impact on the stability of European debt markets. Before, Spanish ten-year bonds were hitting yields of almost 8 percent. They've been dropping ever since and are now just above 2 percent.

The bond-buying plan Draghi used to back up his statement, known as Outright Monetary Transactions, or OMT, has worked despite never being enacted. Simply announcing that it existed -- not long after declaring that whatever the central bank did, "believe me, it will be enough" -- was enough to calm markets.

Draghi understood that saying "whatever it takes" would force recalcitrant policy makers to act and markets to recalibrate. It's what academics call a "performative utterance:" Saying it makes it so. It was smart, close-to-spontaneous politics. And it likely saved the European Union.

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