FRANKFURT (MNI) – The European Central Bank’s new sovereign bond
buying plan is already showing results by restoring faith in the euro
and returning funds to the continent, ECB President Mario Draghi said in
an interview published Friday with German daily Sueddeutsche Zeitung.

“There are already positive results. Just our announcement ensured
that faith in the euro increased worldwide. Fund managers are bringing
their money back to Europe, that is good for the Eurozone economy,”
Draghi told the paper, one week after the ECB unveiled the details of
its new Outright Monetary Transactions program.

But Draghi reaffirmed in strong terms that the ECB is prepared to
pull the plug on its bond buying if a country fails to meet policy
conditions required for the ECB to act, arguing that continuing to
purchase bonds in the face of bad fiscal policy would be useless.

“If a country does not meet its conditions, then the ECB cannot
improve the transmission of its interest rate policy to the real
economy. Every attempt to try anyway would be torpedoed by the
economic-political failure of that country.”

“Policy in many countries was wrong and therefore had to be
corrected. And that is happening right now. But more still needs to be
done. And that is also the reason why we only buy bonds if these
countries stick to their conditions,” he said.

Forcing a country to apply for aid with the European Stability
Mechanism as a prerequisite for the ECB’s involvement is the central
bank’s “best insurance” against risk, he said, adding that “all in all
we have the risks under control. Not to act would have been much
risker.”

Draghi said he sees “considerable progress” in Spain and Italy and
many EMU member countries are correcting the policy mistakes of the
past. The ECB’s latest actions still were necessary because some
countries could not have escaped the crisis with solid fiscal policy
alone.

Draghi said it is critical investors be convinced governments are
committed to maintaining the common currency.

“The financial markets must know that the euro is irreversible.
Only then can they consider investments in euro and this helps us with
the transmission of monetary policy.”

Interviewed by the paper Tuesday, one day before the German
Constitutional Court allowed the ESM rescue fund’s ratification to go
ahead, Draghi said the ESM served as an “important building block” in
combatting the crisis.

“However to overcome the crisis, it is not enough to have the
rescue fund, but rather determined actions by individual member states.
All member states together must complete the economic and monetary
union,” he said. “And we, at the ECB, will ensure price stability with
independent monetary policy.”

Speaking on the day he met with Greek Prime Minister Antonis
Samaras in Frankfurt, Draghi reaffirmed that he was opposed to
restructuring the ECB’s debt with Greece, and said no such proposal was
discussed with the Greek leader.

Draghi insisted the ECB’s new bond-buying plan amounted to
conducting monetary policy rather than state financing, but he
acknowledged there was a difference of opinion with Germany’s Bundesbank
on how to combat the crisis.

Bundesbank President Jens Weidmann was the lone dissenter among the
ECB’s Governing Council, which agreed to the new OMT bond buying plan
after its September 6 meeting.

“It would be nice if we could always work together. We do that
often, but at the moment we have different opinions on how to overcome
the crisis,” Draghi said.

Draghi acknowledged the German public’s skepticism of his plans
makes policymaking more difficult, and said German opposition stemmed
largely from its history and “fear of inflation.”

Speaking the day before the European Commission unveiled its plans
for a common banking supervisor, with the ECB taking a lead role, Draghi
reaffirmed that the central bank would ensure bank supervision is kept
separate from its monetary policy decision making.

“We must organize ourselves in such a way that monetary policy and
banking supervision are strictly separated,” Draghi said, arguing that a
unified EMU supervisor shielded from national politics could better
protect the Eurozone from regulatory failures.

“The further supervision is separated from national politics, the
more objective the necessary decisions will be,” he said.

– Frankfurt bureau: +49 69 720 142; email: ccermak@mni-news.com

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