UPDATE 1-ECB's Trichet: 'Banks are not our problem' -ZDF

Tue May 11, 2010 3:46pm EDT

* Banks haven't approached Trichet over bond purchases

* Liquidity added through bond purchases will be withdrawn (Adds quotes, background)

BERLIN May 11 (Reuters) - The European Central Bank's decision to drop its opposition to buying euro zone government bonds was made to defend its monetary policy, not to help commercial banks, ECB President Jean-Claude Trichet said on Tuesday .

Trichet also said the purchases would not push up inflation because liquidity which the ECB added to the market by buying bonds would be withdrawn.

Euro zone central banks started buying government bonds, many of which are held by banks, on Monday as a key part of a $1 trillion attempt to resolve the euro zone's debt crisis, abandoning resistance to what economists had dubbed the "nuclear option."

"A number of countries came up with serious problems which put our monetary policy into question," Trichet said in an interview, German TV station ZDF reported on its website.

"The banks are not our problem. Our problem is that we want to maintain the normal functioning of monetary policy in Europe," Trichet said.

Trichet indicated that the ECB had not come under pressure from banking interests. "I haven't yet received even a letter from any commercial bank," he said.

He dismissed the suggestion that the bond purchases might be inflationary. "The liquidity which we're adding to the market will be withdrawn by us again so the money supply in circulation will not be increased," he said.

The decision appears not to have been unanimous within the ECB's Governing Council.

"Buying government bonds entails considerable stability policy risks, and thus I regard this part of the ECB council's decision critically even in this exceptional situation," Council member Axel Weber, who heads Germany's Bundesbank, told newspaper Boersen-Zeitung. [nLDE64A23I]

Another Council member, Ewald Nowotny, said the ECB would target problem areas in the bond market, suggesting it would stick to buying bonds where yields spike, a problem suffered by Greek, Portuguese, Spanish, Irish and Italian debt in recent weeks. (Editing by Leslie Adler)

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