Italy's Padoan urges ECB bond buying 'without constraints'

ROME (Reuters) - Italian Economy Minister Pier Carlo Padoan has called for the European Central Bank (ECB) to launch its expected bond-buying programme "without constraints", saying he hoped its impact was not watered down and fragmented along national lines.

The ECB is expected next week to announce it will issue newly printed money to buy government bonds and flood cash into the euro zone economy, aiming to ward off deflation in a step known as quantitative easing (QE).

"QE is an essential contribution against deflation, it should absolutely not be diluted," Padoan was quoted saying in business daily Il Sole 24 Ore on Saturday.

"I hope that national fragmentation doesn't exert an influence," he said. "What counts is to turn around expectations and for that, there needs to be a decisive intervention without constraints."

Details of the programme, which ECB President Mario Draghi is widely expected to unveil after a meeting on Jan. 22, are still unclear.

The size of any programme and conditions such as whether risks will be distributed across the whole euro zone, or whether national central banks will buy the bonds of their own country only, have been under discussion since late last year.

The plan has faced stiff resistance from Germany, the bloc's biggest economy, which fears unlimited bond purchases would risk loading too much risk from weaker countries onto the Eurosystem as a whole.

However some analysts say a system under which national central banks buy their own country's debt would risk undermining the basic principle on which the single currency is built.

QE has already been deployed in the United States, Britain and Japan, but would be an unprecedented experiment in a bloc made up of different countries with no common fiscal system.

Bank of Italy Governor Ignazio Visco told a German newspaper last week he favoured a programme under which risks were borne jointly by the euro zone as a whole, in line with other policy measures which the ECB sets for the whole bloc.

Separately Dutch Finance Minister Jeroen Dijsselbloem signalled in a newspaper interview he would not object to the ECB purchasing national bonds of member states.

Policy makers in Italy, which is struggling to emerge from three years of on-off recession, have warned repeatedly that their economy faces a growing risk that chronic low inflation will tip into full deflation.

(Reporting by James Mackenzie; Editing by David Holmes)