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Thursday is crunch day for the European Central Bank to act.
BRUSSELS, Belgium — Mario Draghi makes an unlikely John Wayne.
Just a few words from the European Central Bank president last week were enough to lift a pall of gloom over global markets, easing pressure on bond rates that was threatening to sink the Spanish and Italian economies.
Now markets, media and politicians across Europe hope the nattily suited, bespectacled Italian banker will lead a cavalry charge to rescue the euro from collapse.
The ECB is set to make key decisions on a new strategy to save the euro on Thursday, but traditional German opposition is feeding doubts about the prospect for agreement.
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Draghi delivered his salve last week addressing investors in London on the eve of the Olympic Games. "The ECB is ready to do whatever it takes to preserve the euro,” he said, “and believe me, it will be enough."
The comment reversed an inexorable-seeming stock market decline triggered by fears Spain’s rising borrowing rate was pushing the country toward insolvency. The interest rate for 10-year bonds dropped below the 7 percent danger point. Italy was also able to sell off 5.5 billion euros worth of bonds Monday at much reduced rates.
European leaders rushed to emulate Draghi over the weekend.
Although most of them have been spouting similar promises for months with little effect, what Draghi says counts because the Frankfurt-based ECB is just about the only body in Europe with the firepower to do the job.
"Mario Draghi has pronounced the magic words," said an editorial in Spain's El Pais newspaper. "The assumption that the ECB will support debts with its unlimited financial capacity is enough to give Spain and Italy the respite they've called for."
European policymakers breathed a sigh of relief over the lessening, however temporary, of the threat that the collapse of Spanish and Italian finances would lead to the euro zone’s breakup.
Italian Prime Minister Mario Monti chimed in with an upbeat assessment on Tuesday. "Some light is appearing at the end of the tunnel,” he said.
He described a “new willingness" among European institutions and governments, including Germany's, to tackle the euro's problems, in comments made on Italian radio.
But Draghi’s options are more limited than his bank's finances.
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Merely reviving the limited interventions the ECB launched last year by buying struggling countries bonds on the secondary market is widely acknowledged as insufficient to solve the deepening problem.
The bank could purchase government bonds on a wider scale working with the euro zone's 160 billion euro ($200 billion) rescue fund. However, Spain and Italy would have to issue a special appeal for help, a humiliating step neither government seems prepared to take.
There is also talk of authorizing the euro zone's planned — and much stronger — reserve fund, the 500 billion euro ($615 billion) European Stability Fund, to act as a bank by borrowing freely from the ECB to buy Spanish and Italian bonds.
However the fund’s formation has been held up by Germany's supreme court. It’s due to rule on whether it would comply with the country’s constitution only on Sept. 12, a delay many in other countries have characterized as scandalous.
More options, such as pumping money into the European economy, must also overcome barriers in Germany, the EU’s richest country. Germans have so far resisted the idea of contributing to schemes that would buy debt pooled from Europe’s crisis-stricken countries.
Although Chancellor Angela Merkel joined the weekend chorus about doing "everything to protect the euro zone," senior politicians within her center-right coalition have expressed doubts about the ECB’s buying of Spanish and Italian bonds.
Germany's own central bank also appears unwilling to let the ECB use its funds to rescue countries many Germans blame for getting themselves in trouble by spending extravagantly. Bundesbank officials expressed surprise over Draghi's statement and criticized proposals to buy bonds as "problematic."
Market enthusiasm in Europe already began to cool on Tuesday amid concern that the ECB's policy-making governing council will not provide the decisive action needed. There are nagging fears the bank’s failure to meet the expectations raised by Draghi's comments will prompt disappointed markets to drag Europe back toward the threat of a euro-zone break up by cranking up pressure on Spain and Italy again.
"Expectations have been increased a lot for big things to happen on Thursday, but will Draghi really be able to deliver?” says Carsten Brzeski, senior economist at the ING bank. “I have my doubts. If it's just revamping the old... program with just an intervention here or there, it won't do the trick."
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There has been a flurry of diplomatic activity seeking to overcome divisions this week, including a round of arm-wringing by US Treasury Secretary Timothy Geithner, who met with Draghi and other European policymakers.
Senior European officials have expressed confidence significant steps will be taken.
"We have arrived at a decisive point," Luxembourg's Prime Minister Jean-Claude Juncker told the German daily Suddeutsche Zeitung. "We must make extremely clear with all available means that we are determined to ensure the financial stability of the currency union."
But a poll published Sunday underscored deep German unease over what's perceived as mounting demands for its taxpayers to support southern Europe.
Just over half of Germans believe they would be better off ditching the shared currency.