ECB President Mario Draghi's recent emphatic comment to an audience in London that the central bank will do "whatever it takes" to preserve the euro has resulted in significant market rallies in both Europe and the United States. The sternness with which Draghi delivered his remark would suggest the ECB is willing to engage in an "all-in" move to reverse the severe decline in Spanish and Italian sovereign bond prices and the appreciable loss of investor confidence in government decision makers. There has been torrid speculation the ECB will revive its Securities Market Program (SMP), which has been dormant for six months. Besides the resumption of sovereign bond purchases under the SMP, investors are focusing on the likely return of Long-Term Refinancing Offers which were last carried out in December 2011 and February 2012.

From my perspective, market participants are probably getting ahead of themselves as to how pro-active and aggressive the ECB might be. Prefacing Draghi's "whatever it takes" remark was the phrase "within our mandate." This would seem to preclude broader lender-of-last-resort actions, engagement in quantitative easing, or the granting of a banking license to the European Stability Mechanism. My note of caution is reinforced by a comment President Draghi made at July's press conference, following the meeting of the Governing Council: "I don't think there is anything to gain by asking the institution to act outside the limits of its mandate, thereby destroying its credibility."

Whatever action the ECB takes in the coming days and weeks, it will not absolve governments of the need to address their deep-seated fiscal and competitiveness problems. I would not be surprised to see Greece and possibly several other countries abandon the euro in the coming months. With this in mind, the ECB could be signaling its intention to establish a stronger defense against contagion, knowing the firewalls already in place are inadequate to defend the integrity of the euro.