ECB's Draghi faces German lawmakers

BERLIN (AP) ? The European Central Bank's president drew a broadly positive response from German lawmakers Wednesday when he told them that his bond-buying plan won't stoke inflation and will not allow struggling countries to backslide on economic reforms.

In an effort to win over skeptical public opinion in Europe's biggest economy, Mario Draghi met for two hours at Berlin's Reichstag building with more than 100 politicians, including members of the budget, finance and European affairs committees.

He said afterward that the closed-doors exchange was "an important component of confidence-building, trust-building."

The ECB last month announced its plan to buy unlimited amounts of short-term bonds of troubled euro economies ? a program aimed at keeping a lid on the borrowing costs of indebted countries such as Spain and Italy.

Although Chancellor Angela Merkel's government supports the plan, the president of Germany's central bank, Jens Weidmann, argues that they come too close to using the ECB's power to print money to support governments' finances directly, which the bank isn't allowed to do.

And there are worries in Germany that unlimited bond purchases could undermine the ECB's official mission of fighting inflation.

Draghi tackled those concerns in remarks to the gathering released by the ECB, insisting that investors' "unfounded fears about the future of the euro area had to be removed."

"The only way to do so was to establish a fully credible backstop against disaster scenarios," he said.

Draghi highlighted the fact that bond-buying will only be triggered once countries apply for help from European rescue funds ? which impose conditions for granting aid.

And, he insisted, the purchases "will not lead to inflation."

"In our assessment, the greater risk to price stability is currently falling prices in some euro area countries," he said. "In this sense, (bond purchases) are not in contradiction to our mandate: in fact, they are essential for ensuring we can continue to achieve it."

Norbert Barthle, a senior lawmaker with Merkel's Christian Democrats, appeared satisfied. He told reporters that the Italian "struck us as a Prussian southern European."

"His answers were very convincing, and so I think we can send the message to German citizens that the worries about inflation that have been expressed here and there are unfounded," he added.

Parliament speaker Norbert Lammert, also a Christian Democrat, said the meeting "contributed a lot to understanding each other's concerns and intentions somewhat better" and to building confidence.

The ECB head argued that the bond program "will not lead to disguised financing of governments" because bonds will be bought from investors on so-called secondary markets, not from governments.

Draghi repeated his oft-stated mantra that it is up to governments to fix their finances, reform their economies and work together to improve the eurozone's structure ? which is line with official thinking in Germany.

He maintained that bond purchases won't create "excessive risks" for European taxpayers because "such risks would only materialize if a country were to run unsound policies." But that, he added, is "explicitly prohibited" by eurozone rescue fund programs.

No country has yet sought to tap the new ECB program, though Spain faces pressure to given the parlous state of its economy and its elevated borrowing costs.

Germany's Parliament would have to approve any application for money from the eurozone's own rescue funds ? an application that is necessary before the ECB can act to assist a eurozone nation.

Some lawmakers suggested they weren't convinced it made sense for the independent central bank to link its actions to financial policy conditions.

And Carsten Schneider, a budget committee member for the opposition Social Democrats, said concerns about extra risks to taxpayers remained.

But he argued that foot-dragging by Merkel was responsible for "the current situation that the ECB is moving away from its normal mandate of ... fighting inflation and taking on tasks to save the euro that it is not actually created for."

Though rhetoric in Germany on the bond-buying program has sometimes been shrill, the atmosphere Wednesday was calm. "The tone was, as is customary in German politics, civil," said Social Democrat Joachim Poss.

Asked whether he considered his mission of winning over German public opinion accomplished, Draghi laughed and said: "Oh, that would be too ambitious."

Source: http://news.yahoo.com/ecbs-draghi-faces-german-lawmakers-132012247--finance.html

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