Europe Is Marginally Less Screwed Than It Was Yesterday

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Grazie, Mario! Photo: Sean Gallup/Getty Images

You might think that the craziest thing an old white guy has done today is take sedatives before a live TV appearance. But half a world away, in Europe, a bunch of old white guys announced that they're attempting to do something much crazier: save an entire continent from total economic calamity.

Mario Draghi, the European Central Bank's old-white-guy-in-chief, announced today his grand plan to save Europe from its debt crisis. Draghi's announcement (and every announcement involving the ECB, really) is a little eye-glazing and TL;DR-y for non-finance types. So, while I won't go full Moron's Guide quite yet, it's worth breaking down into simple, 5-p.m.-on-a-Thursday terms what Draghi did and what it might mean for the euro.

What Draghi announced: a plan known as OMT ("Outright Monetary Transactions"), which will allow the ECB to buy short-term government bonds from Greece, Spain, Italy, and other struggling countries, effectively bailing them out.

How it will help: By using its infinite money supply to bail out member countries, the ECB is effectively agreeing to buy those countries some time — by lowering bond yields and taking some of their short-term pressures away — while they get their economic houses in order.

Which countries get to participate: any countries that formally request the ECB's help and agree to a bunch of fairly harsh conditions that include having their fiscal policy supervised by outside authorities. Spain is in the most trouble, so it will likely be the first country to pass the plate, maybe even as soon as this weekend. But others will follow.

What could happen: Spain gets its bailout, the ECB strengthens its fiscal union and comes up with a better way to oversee the finances of its member countries, and the euro lives to see another day.

What's more likely to happen: Politicians in troubled countries other than Spain might not apply for the OMT, fearful of all the conditions that would be imposed upon them in exchange for the ECB's help. Or they could apply, get their bonds bought, and then ECB could break its promise to impose proper fiscal controls, pissing the Germans off something awful. (See below.)

Who is happy: Spain, Greece, Italy, and other countries that needed a lifeline. Also, the markets, which had a huge day.

Who is not so happy: Germany, the strongest euro zone economy, which is not thrilled that it has to bail out poorer and less fiscally disciplined countries.

Why the OMT matters: It's the biggest, most-overdue step Europe has taken to address the debt crisis so far. It might not work as expected, but it's probably better than nothing.

Why it took so long: The ECB, by its own charter, isn't allowed to bail out member countries directly, so it had to set up a mechanism, called the ESM ("European Stability Mechanism") to do its dirty work for it. Also, Europeans argue a lot.

How this will impact you, New Yorker with passing interest in all things economic: Well, the worst-case scenario for Americans has always been that the European debt crisis would be contagious and throw our BBQ recovery off track. But mostly, assuming OMT does what it's supposed to do, the ECB's actions will probably help Europe return to long-term stability, which will keep us out of another global crisis and possibly make your next Seville beach trip a little more pleasant.

Where to find more complete analysis of ECB stuff: Joe Weisenthal and Matt Levine for the calm stuff, Derek Thompson for some well-placed pessimism, and German newspapers if you spreche Deutsch and enjoy watching very intelligent people absolutely lose it.