News Column

European Central Bank Chief Defends Debt Crisis Plan

Oct. 24, 2012
Mario Draghi

European Central Bank President Mario Draghi stepped up his campaign Wednesday to secure German support for the bank's debt crisis plan by telling lawmakers in Berlin the ECB's bond-buying scheme would help remove fears about the euro.

The ECB chief's appearance before a joint meeting of three German parliamentary committees was aimed at setting out the Frankfurt-based bank's case for its unlimited government bond-buying programme, seen as key by many experts to keeping the eurozone whole.

In his opening statement, Draghi said the plan would not fuel inflation or "compromise the independence of the ECB."

He said the bond-buying scheme did not represent a move by the central bank to help finance governments. Nor, Draghi said, would it result in excessive risks for eurozone taxpayers.

"In our view, to restore the proper transmission of monetary policy ... unfounded fears about the future of the euro area had to be removed," the ECB chief said.

"The only way to do so was to establish a fully credible backstop against disaster scenarios," Draghi said.

Draghi's meeting with members of the budget, European and finance panels - which have to review Germany's response to the crisis - was being held behind closed doors.

The ECB chief is also likely to face questions from parliamentarians on the economic crisis gripping Greece.

While Draghi was speaking to German lawmakers in Berlin, Greek Finance Minister Yannis Stournaras said in Athens his country had been granted a two-year extension to meet the terms of its international bailout programme.

The government in Athens has been locked in talks with the European Commission, the European Central Bank and the International Monetary Fund (IMF) over a 13.5-billion-euro (17.4-billion-dollar) package of austerity measures for the next two years.

However, earlier in the day, ECB executive board member Joerg Asmussen told the German public broadcaster ARD that an agreement on such an extension had not been reached.

Draghi's appearance before the committees follows a series of media interviews and speeches by Draghi in Germany aimed at winning over sceptics in the country, the main contributor to Europe's efforts to end the long-running debt crisis.

In his opening remarks, Draghi increased the pressure on European governments to clean up their state finances.

"It is governments that must set right their public finances," he said. "It is governments that must reform their economies."

Underlying the growing tensions facing the eurozone, the committees' session in Berlin was held against the backdrop of new data from two key surveys showing deepening economic gloom across the 17-member currency bloc.

While the Munich-based Ifo institute said German business confidence slumped to its lowest level in 32 months in October, the London-based Markit economic research group's purchasing managers' index painted a bleak economic outlook for the currency bloc.

Markit's preliminary PMI showed economic output in the eurozone sliding deeper into recessionary territory during October.

Adding to the downbeat picture, US auto group Ford said it wants to close a factory in Belgium, while the French government unveiled a rescue package for ailing national carmaker, PSA Peugeot Citroen.

Since Draghi set out the ECB's plan last month, criticism has emerged across Germany's political and economic establishment.

The nation's widely circulated Bild newspaper last month said the ECB programme was akin to writing a "blank cheque" for the heavily indebted eurozone states.

The ECB's new bond-buying programme is to be activated only when nations applying for support meet tough conditions laid down by European bailout funds.

But this has failed to convince Germany's central bank, the Bundesbank, which has spearheaded the opposition to the programme by arguing that unlimited bond-buying risks undercutting the ECB's independence by blurring monetary and fiscal policy, and also boosting inflation.

This is despite German Chancellor Angela Merkel backing the ECB plan, which is known as Outright Monetary Transactions.

Debt-hit Spain is next month expected to become the first eurozone state to apply for aid under the ECB bond-buying acquisition plan.

In the meantime, pressures have eased on Italian and Spanish borrowing costs since Draghi unveiled the bank's plans, as investor confidence in Europe's efforts to end the euro debt crisis have increased.

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Source: Copyright 2012 dpa Deutsche Presse-Agentur GmbH

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