* ECB meeting pivotal to next week's markets after Draghi pledge * Stabilisation of euro crisis may be needed to avoid Aug 2011 rout * FOMC/BoE meetings; US payrolls; Global PMIs; Spain auction; European earnings By Mike Dolan LONDON, July 27 (Reuters) - ECB chief Mario Draghi may now have positioned himself as the difference between a tranquil August and an action replay of 2011's nightmare summer shakeout in global markets. Between July 27 and the end of September last year, world stock markets lost almost 20 percent. Back then, the triggers - a debt ceiling row in Washington and U.S. government credit rating downgrade - may have been different. But the backdrop was the same: a smouldering crisis in the euro zone, relentless retrenchment of bank lending and household borrowing, and a spluttering global economy. The epicentre has now shifted very much to Frankfurt. As policymakers at the world's two most powerful central banks, the U.S. Federal Reserve and European Central Bank, prepare to meet again next week against deepening global market and economic gloom, it's difficult to overstate Draghi's role. His pledge on Thursday that the ECB would do everything in its power to save the euro ignited world markets only because it was twinned with his assertion that some stabilisation and reversal of now wildly divergent government borrowing rates within the bloc was central to its mandate. Draghi's ability to quickly back his words with action that cuts those extreme bond yield spreads and at least neutralises the corrosive effect on global economic confidence of the lingering euro threat, is easily the biggest make-or-break issue for investors for the next seven days. "What these extreme euro government yields are telling us is there's no single money in the euro zone. You can't have a single currency where 50 percent of the members are paying near zero for funds and 50 percent are paying more than four or five percent," said Ewen Cameron Watt, portfolio manager and Chief Investment Strategist at Blackrock Investment Institute. "To the extent the ECB is the provider of the single currency, it's tremendously important it does something now about this 'Balkanisation' of the euro zone. That's precisely what Draghi's getting at and we shall see next week." That herding of markets and investors to core "safety" within euro markets is best illustrated by two-year bond yields: currently anywhere from negative up to 0.4 percent for Germany, the Netherlands, Finland, France, Austria and Belgium, but 3.7 percent for Italy, 3.9 percent for Ireland, 5.2 percent for Spain and 8.2 percent for Portugal. The asset manager said ECB moves to address this now, via outright bond buying or otherwise, was critical to encouraging what he felt was otherwise a relatively constructive market environment - if only because positioning had again become extreme and expectations sufficiently scaled back. The three biggest drivers of world markets - the euro crisis, the U.S. fiscal tightening and politics, and China's slowdown - should be ranked 50:30:20, said Cameron Watt at Blackrock, which has $3.56 trillion assets under management. If Draghi delivers, he will also take pressure off Fed chairman Ben Bernanke to act again, not just because a euro solution would have a positive impact on U.S. firms and markets but also because monetary and fiscal policy is becoming trickier in the highly-politicised pre-election environment stateside. MARKET WATERSHED? So how bad had the past week become and how much difference did Draghi's verbal intervention make? Looking at 10-year Spanish government bonds as a bellwether shows a spike in yields to new euro-era highs above 7.6 percent has completely unwound. At 6.7 percent on Friday they were 30 basis points down on the week. A 3 percent drop in world stocks in the week to Wednesday has also been completely reversed, leaving them unchanged from last Friday. The euro is more than cent higher versus the dollar on the week, while U.S. 10-year Treasury yields and crude oil are also back to their levels of a week ago. But pre-Draghi, the danger of a tipping point had been real. Renewed fears that the seemingly endless euro crisis will spiral into a barely affordable sovereign bailout for Spain, drawing Italy back into the fray into the process, has once again drained global investor and business confidence in July. U.S. bank Citi captured the gloom on Wednesday when it told clients it now saw a 90 percent chance of a Greek exit from the euro over the next year and that it expected Spain and Italy to require formal bailouts. Writing before Draghi's comments, Deutsche Bank chief economist Thomas Mayer said the ECB now had three options - further interest rate cuts with a negative deposit rate, more of the cheap liquidity it provided to banks in December and February, and a revival of its government bond-buying programme. But overall he said the bloc needed a further drop in the euro exchange rate and a zone-wide current account surplus. "The more other countries resist euro depreciation, the higher is the probability that the euro crisis will get worse and push the global economy into recession." DOLDRUMS There were few bright sparks elsewhere this week, either, with a shocking contraction of British second-quarter output and disappointment on U.S. housing market data that had recently offered a rare flicker of hope. Societe Generale strategist Albert Edwards, a long-time bear, claimed this week the United States was already back in recession. "It is time to take our heads out of the sand, dust ourselves off and embrace the consequences," he told clients. ECB intervention aside, the data backdrop to the Fed policy decision on Wednesday and ECB and Bank of England meetings on Thursday is unlikely to be much brighter. The release of the U.S. July employment report on Friday will be preceded by the key monthly business surveys of purchasing managers worldwide. Policymakers and markets alike have drawn some cheer of late from ebbing inflation, flash July readings of which for the euro zone are due out ahead of Thursday's ECB meeting. Even here the picture has been muddied by the steep backup in oil and food prices, however, with drought catapulting wheat, corn and soybeans 20-30 percent higher year-to-date. That clouds the outlook not only for western central banks but also their peers in emerging economies which are more sensitive to food prices and had been shifting gear into full easing mode.