RPT-ECB's Stark warns EU govts against seeking ECB help

Wed Nov 9, 2011 3:18pm EST

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FRANKFURT Nov 9 (Reuters) - European Central Bank policymaker Juergen Stark warned European governments on Wednesday against asking the ECB for support in dealing with the region's sovereign debt crisis, saying this would put the central bank's independence at risk.

"We are not the lender of last resort (to governments) and I do not advise European governments to ask the ECB to become lender of last resort," Stark, a member of the European Central Bank's Executive Board, told a business conference.

"This will mean that the ECB immediately will lose its independence," Stark said.

Italy's borrowing costs reached breaking point on Wednesday, with 10-year bond yields shooting above 7 percent after Italian Prime Minister Silvio Berlusconi's promise to resign -- a level that is widely deemed unsustainable and that forced Portugal and Ireland to seek EU-IMF bailouts.

Political leaders have raised pressure on the ECB to step up its support for debt-strained euro zone countries, such as Italy and Spain, saying the ECB is the only effective bulwark against market attacks.

Stark said the ECB backstopping would not solve structural problems in such countries, adding that such measures would more likely lead to moral hazard.

"We will not resolve the structural problems these countries are facing, or have been facing for quite some time," Stark said.

"From my personal perspective, and I think I speak on behalf of my colleagues on the Governing Council, we will not ask and we will refuse to have an extension of the mandate for the ECB to become lender of last resort to governments," Stark said.

Traders said, the ECB intervened to buy Italian bonds in large amounts on Wednesday.

The ECB more than doubled its purchases of government bonds in the first week of Mario Draghi's presidency, ECB data showed on Monday, even though Draghi described the programme as "limited" in his first news conference last week, offering no commitment to scaling up the bank's purchases.

The ECB has, however, stopped short of the full-blown quantitative easing policies pursued by the U.S. Federal Reserve and the Bank of England.

"Exactly this is the reason why the ECB is so respected: it does not have the mandate the Federal Reserve does. We have a primary goal, we have a clear cut mandate, one objective ... to deliver price stability over the medium term," Stark said.

Stark opposes the ECB's government bond purchases and will resign by the end of the year. Sources said the ECB's decision to reactivate is bond buying programme in August to start buying Italian and Spanish bonds led to the decision.

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