Markets blow hot and cold over Draghi

The markets rose to applaud him when he said it the first time, and then sank in disgust when he said it the second time.

And then, 24 hours later, they are beginning to think he may actually have said a bit more than they thought after all.

Spanish bond yields, having slipped over 7%, slipped neatly back again. Italian bonds followed suit.

Meanwhile, German, UK, and US yields gained as money seeped back out of their safe havens.

The key part of European Central Bank President Mario Draghi's speech appears to have been the requirement that distressed governments need to knock on the door of the bail-out funds, the EFSF and/or the ESM, and meet whatever conditions those bodies wish to impose.

Only then would Europe's central bank consider helping out.

There is also the question of parity - which means that all bonds bought by the bail-out funds (or by the ECB) would be treated equally to those held by private investors.

Investors have come to resent European institutions being given "seniority", i.e. preference in the case of a default.

So why did the markets come round to the idea that this was actually helpful?

There does seem to have been a change in mood and it can't just be put down to better-than-expected employment figures from the US on Friday.

Europe is beginning to look as though it can manage its way through this situation, even if we can't see the end yet”

Alberto Gallo, head of European macro credit research at Royal Bank of Scotland, believes a rescue framework is slowly being put together in Europe, and this is what the markets have begun to sense, even if they are not totally convinced by what has been explained so far by Mr Draghi.

"There is a bit more of a mechanism being put into place, involving conditionality, which goes beyond the one-off solutions that were put up for Greece and Portugal and Ireland and the IMF," says Mr Gallo.

"Once they deploy a framework things become clearer for the markets and they begin to get a bit of certainty."

The stock markets have had similar mood swings to bonds. In fact there is some evidence that they have been in a better frame of mind for some time.

Over the last two months, the FTSE 100 has gained almost 10%, ending this week on a three-month high, and the Cac 40 and the Dax have lifted around 15%.

Certainly it's been a volatile zig-zag path, but it has been upwards.

The Italian and Spanish equity markets have unsurprisingly lagged, but at the end of this week they recovered all the ground lost in the Draghi drama.

There is also an element of relief here that European markets are not repeating last year's performance, when over 20% was wiped off share values through the summer holiday.

The holidays are not over yet, but the Draghi plan (if it really yet deserves such a title) has begun to win investor support.

Justin Urquhart Stewart, Director at Seven Investment Management said there had been a change in attitude.

"Europe is beginning to look as though it can manage its way through this situation, even if we can't see the end yet. And if it can there is considerable upside.

"On the corporate side, the results from this season have not been too awful and there are some companies still doing very well - Siemens, BASF and other big German companies - despite the slowing of exports."

However, few people expect Greece to remain in the euro, and Alberto Gallo believes the outlook for Spain is not good, especially as there is now a threat of another downgrade of their rating.

"They will have to ask for help if there is a downgrade to 'high yield'. There is rising unemployment, growth forecasts have been lowered, and the potential for a more negative deficit is still there.

"It's one of the countries where we are worried the most. On the markets generally we are a bit reassured by the ECB's words, and we remain relatively positive on yields across the whole European debt market - excluding Spain."

It's extraordinary how much the European markets have made out of what most people think is nothing much at all.

Mario Draghi wagged his finger 10 days ago and said he "would do what it takes" to rescue the euro, which is becoming possibly the most exhausted cliché in modern politics.

And then on Thursday he delivered - well - very little.