ECB has few options left aside from QE, says Draghi

Brussels: The European Central Bank does not have many options left apart from sovereign bond purchases to ward off deflation in the euro area, its president Mario Draghi said Wednesday.

"All members of the ECB's governing council are determined to fulfil our mandate," Draghi said in an interview, when asked about his plans to launch a controversial programme of large-scale buying of government bonds known as quantitative easing or "QE"."Of course there are differences about how we can do that. But it's not as if we have an endless amount of possibilities," he said. Financial markets are betting that the ECB council will announce plans for a programme of some form of QE when it holds its first policy meeting of the year on January 22. Other central banks around the world have used QE programmes to kick-start their economies. But there are critics of such a programme in Europe, notably the Bundesbank or German central bank, which believes QE will take away the pressure on governments to reform their economies and is effectively a licence to print money to get them out of debt. Draghi's comments will fuel speculation that such a programme is imminent. Just on Tuesday, ECB executive board member Benoit Coeure had said discussions about a QE programme were "very far advanced."

"We had a discussion last week on many of the technical details. We are definitely in a position to make a decision on January 22," when the ECB's policy-setting governing council meets next, Coeure said. "But that does not mean we will actually make a decision," he added.

Meanwhile, European Central Bank President Mario Draghi won a legal endorsement as an adviser to the European Union's top court said a bond-buying program designed to help save the euro area may only require fine tuning to bring it in line with EU law. The European Central Bank's Outright Monetary Transactions program won the conditional backing of Advocate General Pedro Cruz Villalon of the EU Court of Justice in Luxembourg, who said the measures "in principle" are in line with the bloc's law.

"The ECB must have a broad discretion when framing and implementing the EU's monetary policy, and the courts must exercise a considerable degree of caution when reviewing the ECB's activity," Cruz Villalon said in a non-binding opinion today. Such advice is followed by the court in a majority of cases. The opinion could ease pressure on ECB President Draghi days before he meets with his Governing Council to consider a separate so-called quantitative-easing package to quell the threat of deflation in the euro area. Opponents of QE had raised legal concerns as one objection.

"This was definitely very good news for the ECB," said Thomas Harjes, senior European economist at Barclays Plc (BARC) in Frankfurt. "We consider today's opinion to be a green light for the ECB's OMT and potential QE including government bonds and potential risk sharing in the event of a sovereign default or debt restructuring."

The ECB in September 2012 announced details of the OMT plan as bets multiplied that the euro area would break apart and after Draghi's promise to do "whatever it takes" to save the currency. The calming of financial markets that the still-untapped OMT program produced helped the euro area emerge from its longest-ever recession.

Germany's own top court had expressed doubts about the legality of the OMT program, when it referred the case to the EU tribunal for guidance.