For all his claims of orthodoxy and credibility, it seems like Draghi has picked up where Trichet left off. Remember the Greek treasury auctions? In this operations the Greek treasury borrows "in the market" at 4.5%. In reality, the Greek treasury sells the bonds to the Greek banks who in turn get the cash from either the Greek Central Bank (they still function AND, contrary to popular belief, issue currency) or the ECB. The purpose is to maintain the fiction that markets are still working (Greek bonds trade at rates that go from 50 to 100%).
Today, as he declares he is against indiscriminate buying of government bonds, Mr. Draghi is indeed buying most of the much celebrated Spanish auction in the "hope" (a favorite financial term) that others will believe Spanish bonds are a good investment.
How is this done? The European banks (presumably heavily represented by the Spanish cohort) buy the debt at the auction. Then, they turn around and pledge the same bonds to the ECB for cash. Here is an article that describes the operation.
The problem, however, is that this does nothing to improve Spain's competitiveness and/or stimulate growth. The point, on the other hand, seems to be to keep the banks alive until, by virtue of some miracle, the economy begins to grow again. With borrowing rates this high, it is unlikely.
