Stock markets (not to mention eurozone periphery bonds) tanked this afternoon. Last week, European Central Bank (ECB) head Mario Draghi promised to do "whatever it takes" to save the euro.
Yet today, given the opportunity, he did nothing at all.
Don't get us wrong. Draghi isn't at all relaxed about the state of the eurozone. Indeed, "the risks surrounding the economic outlook for the euro area continue to be on the downside".
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In his latest press conference following the ECB's decision to keep interest rates at 0.75%, he noted that the growth of broad money was very weak. In other words, there's not much lending going on in the eurozone.
He also noted the "exceptionally high risk premia in government bond prices". Of course, he wasn't able to admit that this is because Spain is bust. Instead it was the fault of "the price formation process in the bond markets of euro area countries" ie evil speculators rather than incompetent leaders.
And he did signal that the ECB is about to take some action. He stated that, "governments must stand ready to activate the EFSF/ESM [the European Financial Stability Facility/ European Stability Mechanism Europe's big bail-out funds] in the bond market".
He also stated that the ECB "may consider undertaking further non-standard monetary policy measures according to what is required to repair monetary policy transmission".
These are two big hints that the printing presses will be turned on in the near future.
A little less conversation, a little more action
So why has the market reacted so badly, with Italian and Spanish bond yieldsveering higher?
It's because both measures came with some big caveats.
Firstly, it will be up to national governments to spend EFSF/ESM money on buying other nations' bonds something that countries such as Finland (part of the Germanic northern' eurozone contingent) oppose.
Draghi also stated that debtor nations had to keep to their part of the "bargain". This means yet more unpopular spending cuts. He also ruled out giving the ESM a banking licence, which would allow it to use leverage to increase the amount of money at its disposal (effectively making it a tool for funnelling eurozone quantitative easing if necessary).
And as several analysts have pointed out, he only talked about drawing up guidelines about bond buying. He did not formally commit the ECB to doing it. Approval of this action may be just a formality, especially since all but one member of the council supported his efforts.
However, as Draghi admitted, the one dissenter was the German representative. While Bundesbank opposition is not great enough to stop the programme, it is enough to delay it by weeks, or even longer.
Will action come in time to save the euro?
Given that the bond market had priced in immediate, extravagant action, following Draghi's rash promise last week, you can see why the markets were unhappy. It also raises the question of whether the intervention will come quickly enough to prevent a crisis.
As Dario Perkins of Lombard Street Research notes: "this is certainly not the big bazooka' that had littered recent market commentary. In fact, the scheme he is now suggesting sounds even less impressive than the failed Securities Market Programme (SMP)" (which involved the ECB buying peripheral country bonds).
We still believe that the ECB will simply have to print more money, since it is the only way to get monetary growth up to rates consistent with any kind of recovery. However, it looks like Brussels wants Spain to formally seek a bail-out before there can be any action. This would give the ECB a lot more leverage in any negotiations with the Germans.
The problem is that in the meantime the Spanish (and Italians) will keep betting that they are 'too big too fail' and continue their game of chicken with the ECB. Even if a deal is struck it will be bad for growth.
The best solution to this sorry mess would be for the euro to split up and for national central banks to deliver their own monetary stimuli (as financial historian Russell Napier suggested might happenin his recent interview with my colleague Merryn Somerset Webb).
However, with the probable exception of Greece, this doesn't seem to be on the cards. Instead, things might have to get even worse before the ECB finally acts and with most European leaders looking to get off on their summer holidays, there may well be a gap of several months before anything happens.
We suspect, though, that the printing presses will be turned on eventually perhaps as early as this autumn. In the meantime, shares in the more troubled parts of Europe already look to be pricing in a pretty awful outcome. That's why we'd suggest drip-feeding some of your money into the region.
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