Draghi Says ECB May Need To Take Exceptional Measures

MarioDraghi 082912

The European Central Bank may have to adopt exceptional measures sometimes to fulfill its mandate of maintaining price stability, the bank's chief Mario Draghi said Wednesday, in what was seen as a response to German criticism of the central bank's bond purchases.

In an opinion piece published in the German weekly Die Zeit, Draghi said, "The ECB will do what is necessary to ensure price stability."

"It will remain independent. And it will always act within the limits of its mandate," he added.

The ECB published the article on its website on Wednesday, hours ahead of a meeting between two key euro area leaders - German Chancellor Angela Merkel and Italian Prime Minister Mario Monti.

"Yet it should be understood that fulfilling our mandate sometimes requires us to go beyond standard monetary policy tools," Draghi said.

Germany has voiced strong opposition to a resumption of ECB's bond-buying, which Draghi hinted at earlier this month. It is also speculated that his bond-buying plan is aimed at lowering borrowing costs for troubled euro area members such as Italy and Spain.

The markets are keenly looking forward to September 6, when the Governing Council meets to decide on interest rates. ECB President Mario Draghi is widely expected to unveil details of any new bond-buying scheme in the post-decision press conference.

Hopes of an ECB intervention helped lower Italy's borrowing costs for six months to its lowest level since March at an auction on Wednesday. The country raised the targeted EUR 9 billion in the strongly bid auction.

Italy is set to face a tougher challenge tomorrow when it is scheduled to auction up-to EUR 7.5 billion of medium and long-term debt. This includes a new benchmark 10-year bond due November 2022.

Governing Council member and Bundesbank chief Jens Weidmann strongly opposes the ECB bond-buying plan. Central bank financing could be "addictive like a drug", he warned in an interview to German magazine Der Spiegel over the weekend. "Such a policy is too close to financing state debt by printing money."

The ECB is not a political institution, Draghi wrote. But it is committed to its responsibilities as an institution of the European Union, he said.

"As such, we never lose sight of our mission to guarantee a strong and stable currency. The banknotes that we issue bear the European flag and are a powerful symbol of European identity," Draghi said.

The ECB Chief noted that monetary policy signals do not reach citizens evenly across the euro area when markets are fragmented or influenced by irrational fears.

"We have to fix such blockages to ensure a single monetary policy and therefore price stability for all euro area citizens," the Italian banker said. "This may at times require exceptional measures."

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