No conflict between Bundesbank, ECB, Draghi says

(FRANKFURT) - Germany's Bundesbank is concerned about the wider risks being stored up in the eurozone's financial system, but is not at loggerheads with the European Central Bank over key policy issues, the ECB said Thursday.

"Nobody, contrary to what some have said, is isolated on the (ECB's) governing council, and especially not the Bundesbank," ECB chief Mario Draghi told a news conference here.

"We are all custodians of stability. There isn't one specific custodian of stability culture," the Italian central banker said.

Last week, the influential German daily Frankfurter Allgemeine Zeitung said it had obtained a copy of a letter from Bundesbank chief Jens Weidmann urging Draghi to rethink an ECB decision to ease collateral rules and warning about the wider risks being stored up in the financial system.

Like every other eurozone country, Germany may only carry a single vote on the ECB's governing council but given the country's clout as Europe's biggest economy and the EU's effective paymaster, its support is seen as vital for Draghi.

Last year, former ECB chief Jean-Claude Trichet and then-Bundesbank president Axel Weber, similarly clashed over a controversial bond-buying programme, leading to Weber's abrupt resignation.

"There are always different points of view, but the Bundesbank is never isolated against everyone else," Draghi said when questioned by journalists on the matter.

Indeed, the ECB's moves to flood the eurozone banking system with cheap loans in two operations in December and February was approved "unanimously" by all members of the governing council, which is made up of the central bank chiefs of the euro area's 17 member states, Draghi insisted.

The moves to swamp eurozone banks with cheap loans has inflated the ECB's balance sheet to more than 3.0 trillion euros.

And reports suggest that the Bundesbank, which holds 27 percent of the ECB's capital, is concerned about the dangers of huge losses in case countries such as Greece default on its debts.

Furthermore, some Bundesbank officials are concerned about the potential inflationary effects of pumping so much liquidity into the financial system.

The ultra-orthodox Bundesbank passed on much of its strict anti-inflationary stance to the ECB when it was created to run Europe's single currency.

"I really cherish the culture and tradition of the Bundesbank," Draghi insisted.