Draghi Hints at Bond Buying But Rules Out Banking License and Warns Governments Must Use EFSF/ESM, ECB Cannot Replace Governments; 10-Year Yield Back Over 7%

Courtesy of Mish.

Today the ECB left interest rates unchanged and hinted at future bond purchases but also warned “Governments must stand ready to activate the EFSF/ESM”.

The Financial Times has details in Draghi prepares for fresh bond buying

Draghi admitted to Bundesbank reservations about bond-buying and made clear that governments would first have to apply to the eurozone’s rescue funds – the European Financial Stability Facility and the European Stability Mechanism – and accept “strict and effective conditionality”.

“First of all governments need to go to the EFSF; the ECB cannot replace governments.”

Mr Draghi also said the ECB “may consider” further non-standard measures but declined to elaborate.

Mr Dragi indicated there would be no immediate intervention. “In the coming weeks we will design the appropriate modalities for such policy measures,” he said.”

He said that all members of the ECB’s governing council had endorsed the framework of measures “with one exception.”

“It’s clear and it’s known that Mr Weidmann and the Bundesbank have their reservations about the programme of buying bonds,” he added.

He also ruled out giving the eurozone’s rescue funds a banking licence, a move that could vastly increase their firepower but which is firmly opposed by the Germany and other core eurozone members. “The current design of the ESM does not allow it to be recognised as a suitable counterparty.

Text of Draghi’s Press Conference

I cannot find some of the direct quotes the Financial Times mentions, but the gist of the Financial Times’ translation seems accurate.

Here are some snips from ECB President Draghi Statement to Press Conference

Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged, following the decrease of 25 basis points in July. As we said a month ago, inflation should decline further in the course of 2012 and be below 2% again in 2013.

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