Lender of last resort

European Central Bank (ECB) chief Mario Draghi resisted calls on Friday for a broad expansion of the bank's controversial bond-buying program, demanding instead that eurozone members contain the debt crisis by getting their public finances in order.

The ECB has come under increasing political pressure to intervene more aggressively in the debt crisis as yields have soared on Italian bonds, which threatens to deliver the currency union a fatal blow by bringing down its third largest economy.

Even states traditionally viewed as fiscally stable - like Austria, France and the Netherlands - have witnessed rising borrowing costs in recent days, heightening concern that the debt crisis is spreading to the entire 17-member eurozone.

Draghi, however, said the ECB should stick to its traditional mandate of keeping inflation under control. Printing money to buy government debt could cause inflation in the long run and reduce the incentive for governments to implement fiscal reforms.

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

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

Implementing reform

Draghi said agreements already made by European leaders to leverage the 400-billion-euro ($541 billion) bailout fund, the European Financial Stability Facility (EFSF), and move towards tighter fiscal cooperation had to be implemented.

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

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

German opposition

Although France has called for the bond-buying program to be expanded, German Chancellor Angela Merkel has said the EU treaty bars the ECB from acting as a lender of last resort for financially strapped eurozone states.

German central bank chief Jens Weidmann - also a member of the ECB's governing council - has taken a harder line, calling for the bank's current limited bond-buying program to be halted.

"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 stabilize the current situation in any sustainable way," he said.

Author: Spencer Kimball (AFP, Reuters)
Editor: Martin Kuebler