The "voluntary" agreement by holders of Greek bonds to accept a 50% loss is better news than I expected for Europe. See this story from Bloomberg.  Tim Duy's worries (found via Mark Thoma's excellent blog yesterday, before the current agreement was announced) still have some force for me, though.   However, "a signal from leaders that the European Central Bank will maintain bond purchases in the secondary market" (Bloomberg) sounds interesting.   In more detail:

Leaders tiptoed around the politically independent ECB’s broader role in keeping the euro sound, making no mention of its bond-purchase program in a 15-page statement. The Frankfurt- based central bank has bought 169.5 billion euros in bonds so far, starting with Greece, Ireland and Portugal last year, then extending the coverage to Italy and Spain in August.

While Trichet didn’t mention the controversial purchases either, his successor, Mario Draghi of Italy, indicated that the policy will continue. Speaking in Rome yesterday, Draghi said the ECB remains “determined to avoid a poor functioning of monetary and financial markets.”

This, from Duy yesterday, may explain the tiptoeing:

The German contingent has effectively shut down the ECB. From the Wall Street Journal:

Lawmakers also pressed Ms. Merkel to push banks considered systemically relevant to raise core capital to 9% by a deadline of June 30, 2012 and urged her to insist on an end to the European Central Bank's program of purchasing euro-zone bonds on the open market to prop up weakened euro-zone members as soon as the EFSF is launched. German lawmakers also called for a clear European commitment to the ECB's independence.

The Germans fear the inflationary consequences if the ECB essentially monetizes the debt of the periphery. But the lack of a credible lender of last resort is crippling rescues efforts, and will continue to do so.

I agree with Duy (and Paul Krugman) that it's ultimately crucial for the ECB to provide this credibility, backing Spanish and Italian bonds, for instance, against a speculative run. Just possibly, Draghi's statement is an attempt to indicate that, pace the German parliament, they will.

Duy: "The whole issue of leverage looks to be little more than a smoke and mirrors effort to make the real firepower of the fund appear to be much greater than reality." In Wolfgang Munchau's even more pointed words": "to disguise a lack of money".

Or possibly, it is smoke and mirrors to disguise a role for the ECB . Perhaps this is wishful thinking. One would really like to know what is in Mario Draghi's mind right now. But at least EU leaders have been decisive about one of the needed actions (the 50% haircut). ECB backing of European bonds is another, about which there is clearly more uncertainty than one would like, but some hope.  It would be far better to remove that uncertainty---doing so sooner rather than later lowers the ultimate cost to EU economies and finances.  It is expectations---confidence that the bank will if necessary back those EU governments whose money is leveraged in the EFSF rescue fund---that are crucial.  Ideally, too, the ECB would concomitantly pursue a looser overall monetary policy, stimulating the EU's economies and thus reducing the cyclical component of their deficits (increasing the tax base, and reducing the need for unemployment-insurance payouts and other äutomatic" cyclical social safety-net spending).   Optimally, the bank would not counteract the tendency of looser money to depreciate the Euro ("sterilize" it, in the jargon), as the high Euro is hurting exports from the European countries whose economies are in the worst shape.  Here Duy is probably right that talks with China to provide funds point in the wrong direction.  Chinese purchases of Euro-denominated assets strengthen (increase the value of) the Euro.