ECB resists calls for more crisis action, cites independence

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European Central Bank chief Mario Draghi stood firm on Friday against heavy pressure to come to the rescue of the eurozone, standing by the bank's independence and anti-inflation duty.

Draghi, who took at the ECB's helm on November 1, hit back by telling governments they had a duty to get their finances in order and enact agreed measures to stabilise the crisis-wracked eurozone.

Pressuring the ECB to act would undermine the bank's credibility, Draghi warned.

In the current environment, the "continuity, consistency and credibility" of the ECB1 and its monetary policy were "essential", the Italian central banker said.

"Credibility implies that our monetary policy is successful in anchoring inflation expectations over the medium and longer term.

"This is the major contribution we can make in support of sustainable growth, employment creation and financial stability," Draghi said in a speech to the European Banking Congress here.

"And we are making this contribution in full independence."

There is growing pressure from politicians and markets for the ECB to ramp up hugely its purchases of debt issued by governments in trouble to relieve upward pressure on borrowing rates and the threat that devalued government bonds could cause severe strains in the banking sector.

It was in the hands of the politicians to solve the debt crisis, Draghi insisted.

"National economic policies are equally responsible for restoring and maintaining financial stability," he said.

"Solid public finances and structural reforms -- which lay the basis for competitiveness, sustainable growth and job creation -- are two of the essential elements."

And a third essential element for financial stability was "a much more robust economic governance of the union going forward," he said, calling for "urgent implementation" of the recent decisions taken by the European Council and the EU summit.

Draghi complained that it was now 18 months since EU leaders agreed to set up the European Financial Stability Facility or EFSF as a bailout fund for debt-stricken countries.

It was also four months since EU leaders had finally decided to make the full EFSF guarantee volume available.

"And we are four weeks after the summit that agreed on leveraging of the resources by a factor of up to four or five and that declared the EFSF would be fully operational," Draghi said.

"Where is the implementation of these long-standing decisions? We should not be waiting any longer," Draghi said.

Bundesbank chief and ECB governing council member Jens Weidmann similarly believed that the onus lay with governments, saying it was "indispensible" that reforms were made to tackle "deficiencies in the institutional framework of monetary union and structural deficiencies in various member states."

"The lack of success in containing the crisis does not justify overstretching the mandate of the central bank and making it responsible for solving the crisis," Weidmann said.

"A clear commitment to (the ECB's price stability) mandate is an indispensable element of a prosperous future for the euro," he argued.

Like Draghi, Weidmann rejected calls for unlimited buying by the ECB of sovereign bonds of debt-wracked countries.

"I am also convinced that the economic costs of any form of monetary financing of public debt and deficits outweigh its benefits so clearly that it will not help to stabilise the current situation in any sustainable way," he said.

© 2011 AFP

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