LEAD: ECB chief does not expect swift end of debt crisis

Jan 27, 2012, 17:52 GMT

Davos, Switzerland - European Central Bank (ECB) chief Mario Draghi said Friday at the World Economic Forum that the European debt crisis would continue to burden economies for some time.

Risk premiums of Europe's highly indebted countries might remain high, he said at the annual conference in Davos, Switzerland.

'Now they are overshooting the sovereign risks, and this may go on for quite a while,' he said.

His comments were underscored by rising Portuguese bond yields on Friday, which hit record levels amid market fears that the country could become the next victim of the eurozone debt crisis.

Yields for 10-year bonds rose to 14.83 per cent, from 14.80 per cent on Thursday.

On the other hand, Italy on Friday sold 11 billion euros (14.437 billion dollars) of short-term government bonds at sharply lower yields, possibly indicating growing investor confidence in the eurozone's third largest economy.

Draghi was somewhat more optimistic about financial markets and Europe's banks.

He noted that the bond market had been revived and that the ECB had injected nearly 500 billion euros into eurozone banks, but said that it would take more time for interbank trading to recover fully.

The effect that the eurozone crisis could have on other regions was highlighted by US Treasury Secretary Timothy Geithner.

The United States' economy would grow by up to 3 per cent this year, he said, but added, 'I think that's a realistic outcome as long as we don't see a lot of risks coming out of Europe.'

While noting that US economic indicators were pointing upwards, he acknowledged the 'very high levels of poverty in this country, very high levels of inequality and an erosion in people's confidence in their [social upward] mobility.'

Geithner also weighed in on Europe's financial firewall. He called for EU countries to expand their emergency fund to stem the eurozone crisis and said this would make it more likely for the International Monetary Fund to lend more help amid the eurozone crisis.

German Finance Minister Wolfgang Schaeuble found himself isolated in Davos as he called for solving Europe's underlying budget issues rather than raising emergency funding.

Both his French counterpart Francois Baroin and EU Economy Commissioner Olli Rehn joined Geithner in calling for raising the financial firewall.

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