ECB ready to do whatever it takes to preserve the euro

European Central Bank President Mario Draghi pledged today to do whatever was necessary to protect the euro zone from collapse, including acting to lower unreasonably high government borrowing costs.

"Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough," he told an investment conference in London.

"To the extent that the size of the sovereign premia (borrowing costs) hamper the functioning of the monetary policy transmission channels, they come within our mandate."

The comments are Draghi's boldest to date and suggest the ECB is ready to row back into the debt crisis to defend Italy and Spain whose borrowing costs have spiralled to unsustainable levels.

The euro jumped while German bond futures, typically favoured by risk adverse investors, turned negative in response.

The ECB has kept its sovereign bond-buying programme mothballed for months and internal opposition to reviving it is stiff so focus will turn to what else the ECB could do.

Economists think it could be forced to buy bonds again, or alternatively, support struggling euro zone countries via the back door.

On Wednesday, ECB policymaker Ewald Nowotny broke ranks with his colleagues, saying that giving Europe's permanent rescue fund a banking licence so that it could drawn on central bank funds had merits. Draghi and others have previously rejected that option.

Alternatively, the bank could act as the Federal Reserve and Bank of England have, and opt for straight quantitative easing -- money-printing by another name.

"The comments about high government bond yields disrupting ECB monetary policy transmission are interesting, in so far as they hint at a possible attempt to circumvent the restrictions on outright government bond purchases," said Marc Ostwald, Strategist at Monument Securites.

"Of course it remains to be see whether Herr Weidmann, Herr Asmussen, Frau Merkel and Herr Schaeuble would agree with his assessment," he said, referring to the senior members of the German government and its representatives at the ECB.

Draghi said at the weekend that the ECB had "no taboos" over what it could or could not do. His fears about the failing transmission of monetary policy chime with similar warnings from Bank of France head Christian Noyer in recent weeks.

French Finance Minister Pierre Moscovici said Draghi's remarks on government bond yields were "very positive".

Draghi added that the ECB did not want to do things that should be done by governments. He refused to speculate on the chance of a country leaving the euro but said that the single currency was "irreversible".