FRANKFURT (MNI) – Falling prices in some EMU countries pose a
greater challenge for the European Central Bank than the risks of higher
inflation, ECB President Mario Draghi said Wednesday in prepared remarks
to Germany’s lower house of parliament.

Draghi told a skeptical Bundestag that the ECB’s new OMT
bond-buying program would not induce inflation and instead was designed
to repair the monetary transmission mechanism and send a clear signal to
investors that their fears of a Eurozone break-up are “baseless.”

“OMTs will not lead to inflation. We have designed our operations
so that their effect on monetary conditions will be neutral. For every
euro we inject, we will withdraw a euro. In our assessment, the greater
risk to price stability is currently falling prices in some euro area
countries. In this sense, OMTs are not in contradiction to our mandate:
in fact, they are essential for ensuring we can continue to achieve it,”
Draghi told the Bundestag.

Draghi added that there were “no signs that our announcement has
affected inflation expectations. They continue to be firmly anchored.”

Draghi said he expected the euro area economy to remain weak over
the near term as many EMU members continue with fiscal consolidation
plans. There should be a “very gradual recovery” in 2013. EMU
unemployment, meanwhile, remains “deplorably high.”

Draghi sought to answer one by one the various criticisms that have
been leveled against the ECB’s bond-buying program announced September
6. He insisted the ECB would maintain full independence in deciding when
to engage in bond buys and said the conditions attached by forcing a
country to have a program with the ESM rescue fund would actually
strengthen the ECB’s independence, not undermine it.

“OMTs will not compromise the independence of the ECB. The ECB will
continue to take all decisions related to OMTs in full independence. It
will decide whether to intervene based on its own assessment of monetary
policy transmission and with the aim of safeguarding price stability,”
Draghi said.

“The fact that governments have to comply with conditionality will
actually protect our independence. The ECB will not be forced to step in
for a lack of policy implementation,” he said.

Draghi also insisted the OMT program would not lead to “excessive
risks” for taxpayers and stressed the central bank was prepared to
suspend any program if countries were not meeting their targets for
fiscal consolidation and structural reforms.

“We have been very clear that each time a programme starts being
reviewed, we will routinely suspend operations and resume them only if
the review has been concluded positively. This will ensure that the ECB
intervenes only in countries where the economy and public finances are
on a sustainable path.”

Draghi insisted the Eurozone was moving in the right direction but
reiterated that many steps to ensure the monetary union’s stability
still had to come from governments.

“We are already moving in the right direction. Across the euro
area, deficits are being cut. Competitiveness is being improved.
Imbalances are closing. And governments are working seriously to
complete economic and monetary union. It is important that Europe’s
leaders stay on course,” he said.

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

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