European Central Bank President Mario Draghi said the economicoutlook is worsening and the bank stands ready to activate itsbond-purchase program if governments fulfil the necessaryconditions.

“We are ready to undertake” Outright Monetary Transactions,“which will help to avoid extreme scenarios,” Draghi said today ata press conference in Frankfurt after policy makers left thebenchmark interest rate at a historic low of 0.75 percent. “Therisks surrounding the economic outlook remain on the downside” andunderlying inflation pressures “should remain moderate,” hesaid.

Draghi yesterday fueled speculation that the ECB might put ratereductions back on the agenda, saying the debt crisis is startingto hurt Germany — the pillar of economic strength in the euro area— and that inflation risks are “very low.” Still, Spain isresisting asking for a bailout that would open the door to ECB bondpurchases, stalling the central bank's efforts to repair itsmonetary policy transmission mechanism.

“It's entirely up to Spain and the Spanish government to takethe decision,” Draghi said. At the same time, “since the OMTannouncement there have been a series of improvements” on financialmarkets, including “a return of flows from the rest of the world,”he said.

Economic confidence in the 17-member euro area fell to athree-year low in October, adding to signs that the region is inrecession after gross domestic product shrank 0.2 percent in thesecond quarter. Third-quarter GDP is due on Nov. 15.

Draghi said the ECB will take the weakening economy into accountwhen it publishes new economic and inflation forecasts nextmonth.

“Certainly the outlook is being revised and there's a picture ofa weaker economy,” he said. “The Governing Council decided to keepinterest rates unchanged. We have not discussed what we're going todo next year in terms of monetary policy.”

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