From Bloomberg

The European Central Bank unexpectedly cut interest rates at President Mario Draghi’s first meeting in charge after euro-area leaders raised the prospect of Greece exiting the monetary union, sending bond yields soaring in Italy and Spain.

ECB officials lowered the benchmark interest rate by 25 basis points to 1.25 percent, confounding 51 of 55 economists in a Bloomberg News survey. Four predicted a quarter-point move and two expected a half-point reduction.

Here is the important point. Even in Greece the primary budget deficit is not that large. The issue is rolling over debt. This is something the ECB could facilitate trivially if it wanted to. It has chosen not to.

Like so many, the ECB over-estimates the role of moral hazard in politics and policy. But, that is a deeper question and a longer conversation.

However, even short of that they could recognize that when much of your currency area is suffer from double-digit unemployment, that a small rise in inflation is not your primary concern.

Afraid to lose creditability?

Credibility of what? That you are ready to rule over a pile of bones if necessary?

The point of credibility is to achieve optimum outcomes, not to show the world what a stiff upper lip you have.

I can’t say that I would have advised Greece to call the ECBs bluff. I am almost everywhere and always a stability advocate. However, I can’t say that I am unhappy that someone has forced the ECB back down to earth.

Someone has finally –if only briefly – halted the Morality Carousel that German Central bankers love to ride on and that Trichet was eager to identify with.

It may seem like creditors and debtors both have each other over a barrel. Indeed, some people wildly think that creditors have power over debtors. But, it only seems that way. Debtors can always walk away. And, creditors can do nothing about it that force alone would not have allowed them to do in the first place.

Never forget that.