Next ECB chief underlines anti-inflation stance

Mario Draghi, Governor of the Bank of Italy, speaks during a meeting of business leaders in Berlin, Germany, Wednesday, May 25, 2011. Draghi has been mentioned as a potential successor to Jean-Claude Trichet, whose term as President of the European Central Bank ends October 2011.  (AP Photo/Michael Sohn)
Mario Draghi, Governor of the Bank of Italy, speaks during a meeting of business leaders in Berlin, Germany, Wednesday, May 25, 2011. Draghi has been mentioned as a potential successor to Jean-Claude Trichet, whose term as President of the European Central Bank ends October 2011.

BERLIN (AP) — The European Central Bank's next leader polished his inflation-fighting credentials and underlined the need to tackle public debt worldwide during an appearance in Germany on Wednesday.

Mario Draghi, the Bank of Italy's governor, is set to succeed Jean-Claude Trichet in November after Germany earlier this month added its endorsement to that of fellow eurozone heavyweight France.

Draghi made clear his adherence to a strong anti-inflation stance, popular in Germany, as he spoke at a conference organized by a group linked to Chancellor Angela Merkel's party.

"The solidity of global growth could be undermined by inflation," Draghi said. "In the face of higher inflation risks, there is a greater need now to proceed with monetary policy normalization."

The ECB already has started to raise its interest rates from rock-bottom levels, unlike the U.S. Federal Reserve and the Bank of England. It raised its main rate to 1.25 percent from 1 percent in April and is expected to increase it further in the coming months.

The ECB aims to keep inflation below, but close to 2 percent. Inflation is currently at an annual 2.8 percent.

In the 17-nation currency zone, "monetary policy will take into account any fresh inflationary tension stemming from the increase in the price of commodities and oil," Draghi said.

"In all events, second-round effects via wages are to be avoided in order to preserve the stability of medium-term inflation expectations," he added. The bank's chief tool for doing that would be more rate increases.

In addition to his job at the Bank of Italy, Draghi also chairs the Financial Stability Board, an international group that coordinates financial regulation.

He cautioned that "if we don't take care of debt and fiscal deficits I think we could have serious downside risks to growth" worldwide.

Draghi did not comment on the debt troubles of bailed-out Greece, Ireland, Portugal and other countries in the eurozone.

But he said that every country must meet three conditions to ensure financial stability in a monetary union — price stability, fiscal discipline, and national economic policies conducive to growth.

"In some countries, we don't have the second and third conditions," he said. Draghi also stressed that tackling debt troubles is first and foremost each country's responsibility.

"The primary responsibility for fiscal retrenchment is national," he said. "Either the national government responds and reforms itself, or there's nothing we can ever think about financing that can fix this problem, this lack of action."