On the anniversary of the European Central Bank's (ECB) confirmation that it would essentially underwrite euro zone sovereign credit risk, and Mario Draghi's memorable line that it would do "whatever it takes" to support the euro currency, how should one assess its performance the past year?
There is no doubt that this action stabilized the EU financial markets and took the heat out of the "future of the euro" debate. Investors weren't prepared to take on the ECB and in short order southern euro zone sovereign bond yields came down and countries such as Spain, Italy and Portugal (more on Portugal in a second!) were able to continue to issue debt to international investors. Allied to improving economic conditions in the U.S., this set the scene for the bullish performance in equity markets from the start of 2013.
(Read more: Portugal's bond market tanks as crisis deepens)
So bravo Mr Draghi!
Has this "solved" the problems of European monetary union? Not one bit. Only last week there were reports of a new euro-related crisis arising in Portugal, and ongoing concerns with Greek debt restructuring. ECB action merely postponed the difficult decisions concerning long-term viability of the euro. Not that it may not survive for another 50 years or even 100 years – but if nothing else changes then that's only going to happen if there are continuing transfers of hard cash from the northern euro zone to the southern. So taxpayers may be getting fleeced by the back door.
Is it part of the ECB's mandate to underwrite euro member debt? Not officially, no. If it had been, the German government would never have been able to convince voters to give up the deutschmark in 1999. And those with an eye for number-crunching might look closer at the ECB's balance sheet and realize that its capital base is really rather flimsy to be supporting such a large pool of low-credit-quality bonds.
The ECB's action didn't solve the euro's many structural problems. These are still with us. The fact that price action – ever rising bond yields – has been stable this year does not mean we have sorted the euro.
(Read more: ECB's Constancio: Policy to remain loose for a while)
But hey, as long as equity markets keep rising, who's worried? Well the ECB should be, for starters. At some point it will be confronted with the next crisis, and will have to put its money where its mouth is. That will be much more painful than mere talk. "Paying any price, bearing any burden" turned out to be a promise too far in an earlier generation as well….
Professor Moorad Choudhry is at the Department of Mathematical Sciences, Brunel University and author of The Principles of Banking (John Wiley & Sons 2012).