–Currently See No Risks To Price Stability In Eurozone

FRANKFURT (MNI) – The European Central Bank will not use its new
bond buying program to completely eliminate differences in Eurozone
interest rates, because the spreads represent an important incentive for
governments with higher borrowing costs to pursue economic reforms, ECB
President Mario Draghi said in an interview with the German magazine Der
Spiegel released over the weekend.

Draghi also stressed that the ECB pledge to buy “unlimited”
quantities of sovereign bonds if necessary does not mean that purchases
will be uncontrolled, since the central bank will insist that the
conditions set by political authorities be met by the governments
concerned.

“High interest rates are the most significant source of pressure
for a government resisting reform,” Draghi said. “This is exactly why we
insist on adherence to strict conditions. Moreover, we do not want to
completely eliminate differences in interest rates between countries. We
will only intervene if the differences become excessive.”

Draghi would not reveal at what level the central bank might
consider differences excessive. “We have decided not to give exact
figures for our programme that we could later be pinned down to,” he
said. “What I can tell you is that a good analysis will provide you with
the necessary indications regarding the point at which the differences
give cause for concern.”

The head of the ECB also reiterated the threat that the central
bank would withdraw support should governments not stick to the reform
agrements that form the basis for bond market interventions in the first
place.

“Unlimited does not mean uncontrolled; on the contrary, we will
only buy bonds from those countries that accept strict conditions, and
we will check very carefully whether those conditions are adhered to,”
Draghi said. “If a country does not adhere to what has been agreed, we
will not resume the programme. We have announced that we will suspend
operations once a programme country is under review.”

Draghi also said, “we firmly expect the inflation rate in the euro
area to fall next year to below our target of close to 2%.” He added
that he does “not see any risks to price stability” at the present time.

Draghi’s response to concerns about a possible asset price bubble
in core Eurozone countries highlighted the difficulties of setting a
common policy for the Eurozone as a whole.

“We, the Governing Council of the ECB, are committed to
safeguarding price stability and avoiding systemic asset bubbles,”
Draghi said. “So far we have seen some rising prices in a few asset
markets at the local level. Such phenomena must be dealt with regionally
by the relevant political and supervisory authorities, for example by
asking banks to hold more capital against their real estate exposure.”

–Frankfurt bureau tel.: +49-69-720 142 Email: jtreeck@mni-new.com

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