Brussels: Mario Draghi, the president of the European Central Bank, has said that he did not see a risk of widespread asset bubbles in the Eurozone, even if some markets are “frothy”.

Answering questions from members of the European Parliament in Brussels, Draghi acknowledged that investors have driven down the premium they demand for riskier assets. But he said the demand for high-yield investments has not been accompanied by a surge in debt of the kind that preceded the financial crisis.

“We don’t have the general conditions that accompany the creation of systemic bubbles,” Draghi said.

The central bank is very attentive to the risk of bubbles, he said, adding that if any arose the solution would be to tighten regulation of banks rather than raising official interest rates. “We don’t see a bubble yet,” Draghi said, adding, “I think the word is ‘frothy’ market conditions.”

Draghi’s comments come amid increasing concern that investors around the world have been paying too much for bonds and other securities, creating the conditions for a market crash. In Europe, market interest rates for some government bonds have plunged.

Greek 10-year bonds that once sold with an interest rate, or yield, of 40 per cent have been selling recently with yields close to 6 per cent.

Draghi’s appearance at Parliament was his first since a new session began this month with members elected in May, when parties hostile to the EU and the euro currency made significant gains. Among his questioners was Bernd Lucke, chairman of the Alternative for Germany party, which wants to scrap the euro.

As expected, Lucke’s questions reflected his euro-skeptic views. He suggested that it would be a mistake to admit Lithuania to the Eurozone on January 1, as planned.

Draghi replied that tying Lithuania closer to Europe would help preserve the country’s independence. Sometimes, Draghi said, “shared sovereignty is the only way to retain sovereignty. This is what the Lithuanians have understood very well”.

Lucke also asked Draghi to defend record-low European Central Bank interest rates, which he said were creating severe problems for German pension funds.

Draghi replied that “we look at those concerns very carefully”, but said that low market interest rates in Germany were not the fault of central bank policy. In June, the ECB cut its main policy rate to 0.15 per cent, the lowest ever.

The bank is ready to undertake large asset purchases to stimulate the Eurozone economy if needed, Draghi said, repeating earlier expressions of resolve. Official data show that Eurozone industrial production fell in May, raising concern that a weak recovery on the Continent is already losing steam.

So-called quantitative easing, Draghi said, “falls squarely in our mandate”.

— New York Times News Service