ECB president Draghi said the ECB would not use its yet-to-be-activated bond-buying programme to save profligate countries from insolvency, but only to preserve the euro.
The central bank's programme has helped calm markets over the past couple of months, but it has raised particular concern in Germany, which is most exposed to potential risks involved as the ECB's largest shareholder. Draghi spoke on the eve of hearings at Germany's top court to weigh the legality of so-called Outright Monetary Transactions (OMT) program. "The ECB says if there is a confidence crisis in the euro which is threatening the solvency of the countries not beyond what their fundamentals are, then we are ready to intervene", he said
Draghi said eurozone countries had made significant progress in the last year in terms of reducing their budget deficits, cutting public debt and becoming more competitive. So the idea that big differences in interest rates were necessary to force governments to act was only partly true, he added. "You don't need spreads that are so high that the rest of the world will lose any confidence in the sustainability of the euro itself and therefore in the single countries", he said.
"You need spreads that clearly reflect the fundamentals of the country. It would be profoundly mistaken if we were to lower these spreads artificially", he added.
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