ECB's Draghi Defends Bond Purchases In German Parliament

European Central Bank President Mario Draghi has defended a plan to buy government bonds that has drawn strong opposition from Germany. Making a rare appearance in a national parliament, the ECB Chief told German lawmakers at the Bundestag on Wednesday that the bond purchases known as the Outright Monetary Transactions (OMTs) will not lead to inflation. "We have designed our operations so that their effect on monetary conditions will be neutral. For every euro we inject, we will withdraw a euro," Draghi said. The greater risk to price stability is currently falling prices in some euro area countries, he added. Hence, OMTs are not in contradiction to the central bank's mandate, but they are essential for ensuring that the bank can continue to achieve it, There are no signs that the announcement of bond-purchaes has affected inflation expectations, which remain firmly anchored, the central banker noted. Further, Draghi said OMTs will not lead to disguised financing of governments and the ECB has specifically designed its interventions to avoid this. The central bank will buy government bonds only on secondary markets and government debt will be bought only from investors and not governments, he said. "All this is fully consistent with the Treaty's prohibition on monetary financing. Moreover, they will focus on shorter maturities and leave room for market discipline," Draghi said. He also said that OMTs will not compromise the independence of the ECB as governments have to comply with conditionality to secure central bank intervention. The bank will not be forced to step in for a lack of policy implementation, the Italian banker noted. "OMTs will not create excessive risks for euro area taxpayers," Draghi said. "Such risks would only materialize if a country were to run unsound policies." The bank will suspend operations if a country fails to comply with the conditions of any bailout given to it. This will ensure that the ECB intervenes only in countries where the economy and public finances are on a sustainable path, Draghi said. Draghi forecast 'a very gradual recovery' next year for Eurozone, which is expected to remain weak in the near term. The unemployment situation in the euro area remains 'deplorably high', he noted. He urged euro area governments to set right their public finances and reform their economies. "We are already moving in the right direction. Across the euro area, deficits are being cut," Draghi said. "Competitiveness is being improved. Imbalances are closing. And governments are working seriously to complete economic and monetary union."