European Central Bank President Mario Draghi defended his plan to buy government bonds in the German parliament today with a warning about deflation risks.

The ECB’s so-called Outright Monetary Transactions “will not lead to inflation,” Draghi told lawmakers in Berlin, according to a text provided by the ECB. “In our assessment, the greater risk to price stability is currently falling prices in some euro-area countries,” he said. “In this sense, OMTs are not in contradiction to our mandate: in fact, they are essential for ensuring we can continue to achieve it.”

Draghi is seeking support in Europe’s largest economy for his plan to purchase government bonds to stem the debt crisis and safeguard the euro. Some German policy makers including Bundesbank President Jens Weidmann have said the plan is tantamount to printing money to finance governments, which is prohibited by the ECB’s statutes.

“OMTs will not lead to disguised financing of governments,” Draghi said. “All this is fully consistent with the Treaty’s prohibition on monetary financing. Moreover, they will focus on shorter maturities and leave room for market discipline.”

Draghi said the program won’t compromise the ECB’s independence because it requires governments to agree to conditions. The program doesn’t create “excessive risks” for euro-area taxpayers, he added.

‘Unsound Policies’

“Such risks would only materialize if a country were to run unsound policies,” Draghi said. “The ECB intervenes only in countries where the economy and public finances are on a sustainable path.”

Bond purchases won’t fuel inflation because the ECB will absorb the liquidity created by those interventions, Draghi said.

The ECB expects the 17-nation euro economy to remain weak in the “near term,” before recovering very gradually in 2013, he said.

The International Monetary Fund earlier this month cut its euro-region growth forecast for next year to 0.2 percent from 0.7 percent and said the economy may shrink 0.4 percent this year as governments cut spending.

Bloomberg