–Adds Details and Quotes

PARIS (MNI) – The European Central Bank may undertake “outright
open market operations” to reduce interest rates risk premiums that are
related to fears about the future of the euro, ECB President Mario
Draghi said on Thursday.

“Risk premiums that are related to the fears of the reversibility
of the euro are unacceptable,” Draghi said. “The euro is irreversible,”
Draghi told a press conference following a meeting of the bank’s
Governing Council

Draghi said, however, that Eurozone governments first need to take
action to activate Europe’s bailout fund, the European Financial
Stability Facility, before the ECB can act.

“Governments have to go to the EFSF,” Draghi said. “The ECB cannot
replace governments, or cannot replace the action that other
institutions have to do.”

If governments and the rescue funds fulfill their roles, the ECB
“may undertake outright open market operations of a size adequate to
reach its objectives,” Draghi said, adding that concerns about the ECB’s
status as a senior creditor “will be addressed.”

The precise modalities of the open market operations will be
determined in the weeks ahead, he said, noting that no country has asked
for assistance of the EFSF, so there is no need to act immediately.

Draghi specified that today’s Council action was “not a decision”
but rather “determined guidance for the [ECB] committees to design the
appropriate modalities for these policy measures.”

This “framework was endorsed with all the Governing Council members
with one exception,” he said. Referring to the opposition of Bundesbank
President Jens Weidmann to ECB bond buying, Draghi said, “It is clear
and it is known that Mr. Weidmann has reservations.”

Any future open market operations “would be focused on the
short-term part of the yield curve” and thus be “very different from the
SMP” but still carried out within the secondary market, he specified.

The Council did not specifically discuss Spain and Italy today,
Draghi said: “We didn’t’ discuss specific country situations. It’s up to
countries to decide whether they need and want help from the EFSF.”

Draghi rejected market speculation that the permanent bailout fund,
the European Stability Mechanism, could be given a banking license in
order give it more firepower for market interventions. The ESM cannot be
“recognized as a suitable counterparty” for ECB refinancing, he said.

Draghi said the strong tone of his speech in London last week was
meant to send a message against those who would bet against the euro.

“It is pointless to bet against the euro, it’s pointless to go
short against the euro… to go back to the lira, the drachma,” he said.
“It’s pointless because the euro will stay irreversible.”

–Paris newsroom, +33142715540; jduffy@marketnews.com

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