– Adds Comments On Fin Mkt Fragmentation, OMT Limits, ECB Minutes

FRANKFURT (MNI) – The European Central Bank’s best contribution to
restoring growth in the Eurozone will come from addressing financial
market fragmentation that has blocked its low interest rate policy from
being translated into low lending rates across the currency bloc, ECB
President Mario Draghi said Tuesday.

Testifying before the European Parliament in Brussels, Draghi said
the ECB’s OMT bond-buying program announced September 6 is designed
“exactly to remove one reason [for] financial market fragmentation,
namely redenomination risks, tail risks.”

“We mean to reactivate the [monetary policy] transmission channel,”
Draghi said. “The greatest contribution to growth in the years ahead
will come from overcoming this financial market fragmentation.”

Draghi reiterated that the OMT was available only to countries with
full market access and repeated there were no limits set on the OMT’s
firepower: “How big is the OMT? The size is unlimited. The size can be
seen as adequate to reach its objective.”

But Draghi reiterated that monetary policy was only one element of
the solution: “We are convinced that our monetary policy, even our
extraordinary monetary policy actions, would be ineffective if the
countries concerned wouldn’t undertake the necessary reforms.”

This was the reason the ECB has insisted that a country seeking
central bank aid must first apply for aid – with conditions attached –
from the ESM or EFSF rescue funds. Draghi also repeated that OMT bond
buys will not be undertaken while a country’s program with the ESM/EFSF
is under review.

“The conditionality is part and parcel of the program,” he said.
“The OMT without conditionality would not work.”

Asked about the possibility of the ECB publishing the minutes of
its Governing Council meetings, Draghi said the Council was open to the
idea.

“The bottom line is, we are collectively thinking about this,”
Draghi told parliamentarians.

Earlier in his testimony, Draghi said financial market
fragmentation within the Eurozone was still being caused by a “crisis of
confidence that has taken over the euro area…It’s improved, but it’s
still there.”

Draghi said there was a “long list of indicators” that show
financial market fragmentation remains a problem in the Eurozone.

“Some things improved over the last three months, but I think the
road ahead of us is still long, and it’s an uphill” climb, he said.

Draghi reiterated that the ECB must stay within its mandate: “The
ECB cannot undertake monetary financing and cannot replace what
governments should do…It’s too easy to think that the ECB can replace
governments’ action, or lack of it, (by) printing money.”

“The ECB has already done a lot to this extent,” Draghi said,
adding that both governments and the central bank have their areas of
responsibility and each side “has to act within its mandate.”

Asked about Ireland’s still heavy debt load and whether the ECB
could provide relief, Draghi said there was a “desire on all parties to
find a solution.”

— Frankfurt bureau: +49 69 720 142; email: frankfurt@mni-news.com

[TOPICS: M$X$$$,M$$EC$,MGX$$$,MT$$$$,M$$CR$]