Reckless bond buying could damage the ECB: Draghi

10th December 2010, Comments 0 comments

The European Central Bank could lose its independence if government bond purchases are not managed carefully, Italian central bank governor Mario Draghi said in an interview published on Friday.

"I've been very careful in stating the terms under which these purchases could be undertaken," Draghi, who is also an ECB governor, told the Financial Times.

"I'm only too aware that we could easily cross the line and lose everything we have, lose independence, and basically violate the Treaty," he added in reference to the Maastricht Treaty, the ECB's regulatory framework.

In May, the ECB began to buy government debt on secondary markets, saying it needed to ensure the smooth transition of its monetary policy.

The bank is not supposed to finance governments' debts however, and the move has divided the ECB governing council, with firm and public opposition coming from German central bank governor Axel Weber.

Both Draghi and Weber have been tipped as early front runners to replace ECB president Jean-Claude Trichet when he steps down in October 2011.

The ECB has purchased a little less than 70 billion euros (93 billion dollars) in bonds so far under the Securities Markets Programme, and traders report that buying leapt last week as eurozone finance ministers sought to resolve the Irish debt crisis.

Trichet said on December 2 that the programme would continue and that purchases would be "commensurate" with the level of tension on bond markets.

ECB buying has helped cap the rate of interest that debt-laden eurozone governments must offer to place bonds, but several countries do not want it to become a permanent financier of public debt.

© 2010 AFP

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