The President of the European Central Bank, Mario Draghi, sent stock markets soaring on Thursday with his announcement that the ECB was prepared to buy unlimited quantities of government bonds of member nations if necessary to halt the crisis.
The senior German on Draghi's board, Jens Weidmann, head of the powerful Bundesbank, reacted with predicable horror, voting against the plan. The Bundesbank even put out a statement warning that the move was the equivalent of "financing governments by printing banknotes."
But what Draghi gave with one hand, he took away with the other. To qualify for ECB purchases of their bonds, nations like Spain and Italy, whose securities are under speculative attack, must submit to the austerity police.
Before the central bank will give them any help, these nations must apply for aid to Europe's still-to-be ratified bailout fund, the European Stability Mechanism. And applications for such aid trigger stringent austerity requirements of the sort visited upon Greece and Portugal -- whose main effect was to drive these suffering economies further into the ground.
Not surprisingly, Italian Prime Minister Mario Monti and his Spanish counterpart, Mariano Rajoy, were quick to say they wanted no part of this deal. All of which leaves the European crisis in just about the same state as before the ECB announcement.
So despite over a month's work gaining the support of his board for an aggressive bond buying program, Draghi ended up right back where he started in early August, when he recanted earlier remarks that he would do "whatever it takes" to save the euro.
Even German Chancellor Angela Merkel supported Draghi's latest plan -- a telltale sign that the ECB initiative changes just about nothing. Perverse austerity still reigns. It's not clear whether Merkel and her protégé Weidmann are doing a nice-cop/bad cop act, or whether there are subtle schisms in the German ruling elite. But it is clear that nothing fundamental has been changed.
What's interesting are the persistent differences between the ECB and its American counterpart, the Federal Reserve -- two major differences in particular.
Unlike the ECB, the Fed really is willing to buy as much of the U.S. Treasury debt as necessary, with no strings attached, to keep interest rates close to zero. This is, indeed, tantamount to printing money. But in a deflated economy printing money is just what's indicated.
The American deficit hawks have tried to enlist Bernanke as an ally, but Bernanke has pointedly refused to condition the Fed's monetary policy on fiscal austerity. On the contrary, as I reported last week, Bernanke in a high profile speech at Jackson Hole, Wyo., on Aug. 31 warned against too much budget belt tightening.
By contrast, Draghi has set conditions that make it almost impossible to deliver on his offer to buy unlimited amounts of government bonds. Far from giving Spain and Italy helpful offers they can't refuse, he has given them conditions they can't accept.
The reason is not that Bernanke is more heroic than Draghi. It's that the ECB is a prisoner of European fiscal politics led by the German government, in which no policy that might prove helpful can advance without beneficiary nations accepting offsetting austerity.
As long as this remains the case, measures like Draghi's latest will buy a little time while the bond market tries to decide whether he is serious. Interest rates on Spanish and Italian bonds will decline briefly, only to rise once more. And the European economy will continue to bump downwards.
The EU is now officially back in recession. Unemployment is rising in all of the nations that have submitted to austerity plans. Even the Germans, who benefit from the rest of Europe's pain because capital flight produces very low German interest rates, are headed for a recession later this year, according to the OECD.
Europe's economies are prisoners of Merkel's austerity demands on one side, and the speculative attacks of the bond market on the other. In principle, the ECB could extend unlimited support to government bonds, and take the profit out of speculation. Draghi's latest announcement seems to offer just that, but the austerity conditions render it next to useless.
Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His latest book is A Presidency in Peril.