ECB pledges further euro support

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"The euro is irreversible," he said, adding that the high yields on some eurozone government bonds were unacceptable.

He said the ECB may intervene in the bond markets to support struggling nations.

Earlier, the ECB kept the main eurozone interest rate at a record low of 0.75%.

At his press conference, Mr Draghi said that the ECB's bond-buying process would resume, but that it would be different to the Securities Markets Programme (SMP), which involved buying large quantities of government bonds from banks and other financial institutions on the open market.

Mr Draghi said that the new scheme would involve buying shorter-term bonds, which should allay some of the fears of the German government.

But he also made it clear that the market intervention was only a short-term measure, to keep the markets happy until governments had solved their own problems.

"Policymakers in the euro area need to push ahead with fiscal consolidation, structural reform and European institution-building with great determination," he said.

Mr Draghi continued: "The adherence of governments to their commitments and the fulfilment by the EFSF/ESM of their role are necessary conditions."

Currently, the European bailout fund - the EFSF - and its delayed sister fund - the ESM - would require any country seeking help to sign a memorandum of understanding, or promise to carry out certain measures such as cutting spending or raising taxes.

Mr Draghi stressed this "conditionality" several times.

When asked whether Spain, and Italy would, therefore, have to submit to similar strictures imposed on Portugal, Ireland and Greece before the ECB could act to buy their bonds, Mr Draghi replied: "Yes, that is exactly how you should see it."

He also said that the ECB would address "the concerns of private investors about seniority".

Some investors are worried that if the ECB were to buy a lot of government bonds, it would get precedence over them when funds were distributed if a country were to default on its debts.

Spain's borrowing costs have been at high levels, prompting speculation that it will need a full bailout.

Spanish and Italian bond yields have not changed significantly on the day, but the Spanish and Italian stock markets have fallen by about 4% since Mr Draghi started speaking.

Italian Prime Minister Mario Monti and Spain's Prime Minister Mariano Rajoy are due to give a news conference later in the day.

Mr Draghi said: "What we have expressed is guidance, and strong guidance, about strong measures which will be completed in the coming weeks."

Asked whether the ECB's decisions had been unanimous, he replied: "The endorsement to do whatever it takes to preserve the euro as a stable currency has been unanimous."

"But it is clear, and it is known, that Mr Weidmann and the Bundesbank have their reservations... about buying bonds."

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The Spanish government sold 3.1bn euros of debt at an auction earlier on Thursday, but again had to pay more to borrow the money.

The average interest rate on 10-year bonds rose to 6.65% from 6.43% at the last auction on 5 July.

Last week, the yield on Spanish 10-year bonds hit a record high of 7.6% on the secondary market, where bonds sold at previous auctions are bought and sold.

This raised concerns that the country would need a full bailout, beyond the help for its struggling banks that has already been agreed.

Greece, Portugal and the Republic of Ireland all had to seek international bailouts when their borrowing costs reached similar levels.

The ECB, which sets the cost of borrowing for the 17 countries which use the euro, cut its key rate from 1% to 0.75% last month, to try to bring down borrowing costs and stimulate economic activity.

Source & Image : BBC