The fragility of the euro zone economy and public finances underline the need to extend and strengthen euro-wide economic management, European Central Bank Governing Council Member Mario Draghi said on Saturday.

The euro is solid, Draghi told a gathering of market operators in Naples, but he called on the EU to extend and reform its economic structures with the same vigor it devoted over the years to consolidating government budgets.

Draghi said investors will buy new securities issued by Greece, whose debt crisis has roiled markets in recent weeks, so long as the government adjusts its budget with determination, with careful monitoring by the European Commission and the ECB.

More broadly, he said all governments should spell out how they plan to rein in budget deficits and debt levels which surged during the recession of 2008 and the first half of 2009.

The euro zone economic recovery is fragile and there are no medium-term inflation risks, said Draghi, who is also Bank of Italy governor and president of the Financial Stability Board.

Euro zone inflation will rise only slightly from January's 1 percent rate and no medium-term risk of inflation has emerged.

The benign price outlook, however, is accompanied by a faltering economic recovery in the 16-nation bloc, said Draghi, who is tipped as a possible successor to ECB chief Jean-Claude Trichet when Trichet's term expires in November 2011.

The return to growth is fragile, particularly in the euro area, Draghi said.

The euro zone economy grew by just 0.1 percent in the last quarter of 2009, data showed on Friday, slowing sharply from the 0.4 percent rate posted in the previous three months.


Draghi said Italy's banks were sound and, having strengthened their capital bases, were well placed to cope with the international environment.

They will have to make significant adjustments to comply with regulatory changes proposed by the Basel Committee, but they nonetheless start out from a better situation than other banking systems in terms of capital quality.

However, the banks must still improve the service offered to retail customers, he said, calling for new legislation to ensure a drastic simplification of the opaque fee structure applied to credit facilities and overdrafts.

At the European level, a new round of stress testing of the major EU banks has begun in recent weeks and the results will be released at the end of June, Draghi said.

While Italy's financial system appears relatively solid, the broader economy is emerging from the recession exactly as it went into it, Draghi noted, with a low growth rate, one of the lowest in Europe.

The euro zone's third largest economy contracted by 4.9 percent last year after shrinking 1.0 percent in 2008, and the Bank of Italy forecasts growth of just 0.7 percent this year.

Draghi said falling employment levels would continue to weigh on already weak domestic demand and hurt prospects for recovery.

(Editing by Andy Bruce)