European Central Bank President Mario Draghi will hold talkswith Bundesbank President Jens Weidmann in the coming days in aneffort to overcome the biggest stumbling block to a new raft ofmeasures including bond purchases, two central bank officialssaid.

Having secured the backing of governments in Spain, France andGermany, Draghi is now seeking to win over ECB policy makers for amulti-pronged approach to reduce bond yields in countries such asSpain and Italy, the officials said on condition of anonymitybecause the talks are private.

Draghi's proposal involves Europe's rescue funds buyinggovernment bonds on the primary market, flanked by ECB purchases onthe secondary market to ensure transmission of its record-lowinterest rates, the officials said. Further ECB rate cuts andlong-term loans to banks are also up for discussion, one of theofficials said.

The euro strengthened, and was up 0.4 percent on the day at$1.2337 as of 6:49 p.m. in London. U.S. stocks rallied and goldfutures extended gains.

Draghi is trying to put together a game changer in the battleagainst the sovereign debt crisis, and winning Weidmann's supportwould enable him to present a united front to financial markets.Draghi flagged the intervention yesterday, saying the ECB will dowhatever it takes to preserve the euro. The Bundesbank respondedtoday by reiterating its opposition to ECB bond purchases.

Draghi will speak with Weidmann before the ECB's GoverningCouncil convenes in Frankfurt on Aug. 2, the officials said. He hasalso reached out to other ECB policy makers in an effort to buildconsensus, they said. A Bundesbank spokesman declined tocomment.

An ECB spokeswoman said in an e-mailed statement that it isusual practice and nothing special for Draghi to meet or talk withmembers of the Governing Council. She declined to comment on thecontent of any talks.

Draghi has already secured the endorsement of Germany and Francefor a plan to reduce bond yields in Spain and Italy, which arethreatening the existence of the euro.

German Chancellor Angela Merkel and French President FrancoisHollande echoed Draghi's language after a telephone conversationtoday, pledging to do everything to protect the single currency.The two largest euro-area economies are “bound by the deepest duty”to keep the 17-nation currency bloc intact, Merkel and Hollandesaid in a joint statement.

Increased Credibility

“German support increases the credibility of an ECB interventionimmensely, as otherwise markets would have to fear a subsequentdown-scaling of the policy action,” said Christian Schulz, senioreconomist at Berenberg Bank in London. “If the ECB is credibleenough, bond yields would stabilize without the ECB buying manybonds at all.”

The yield on Spain's 10-year bond dropped to 6.74 percent todayfrom 7.62 percent on July 24 as markets rallied on Draghi's signalof ECB intervention.

While granting a banking license to Europe's permanent rescuefund, the European Stability Mechanism, is a long-term aim ofDraghi's, it is not part of the immediate crisis plan, one of thecentral bank officials said.

Government bond purchases have seen two German policy makersquit the ECB.

Vocal opponent Axel Weber stepped down as Bundesbank presidentlast year and ECB chief economist Juergen Stark retired at the endof 2011. Both complained that the bond program blurred the linebetween fiscal and monetary policy and relieved pressure ongovernments to enact reforms.

A spokesman for the Frankfurt-based central bank said in astatement read over the phone earlier today that there haven't beenany changes in its position on bond purchases. The Bundesbank hasrepeatedly said in the past that it views such buying criticallybecause it blurs the line between monetary and fiscal policy, hesaid.

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