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ECB's Draghi rules out debt relief for Greece

Aleksandar Nakic | E+ | Getty Images

European Central Bank (ECB) President Mario Draghi reiterated on Thursday that the central bank would not participate in any further debt relief for Greece, arguing that such a move would be tantamount to financing the country directly.

"It is pretty clear that we cannot do monetary financing," Draghi said, referring to the bank's founding treaty which forbids direct financing.

International lenders estimate Greece could need up to 10 billion euros ($13.2 billion) more by September, as it struggles to plug a funding gap.

Draghi said it was up to the Eurogroup of euro zone finance ministers to decide on whether to extend the current aid program for Greece, and underlined that if they did so, then Greece must accept more conditionality clauses.

Draghi's comments come after Eurogroup chief Jeroen Dijsselbloem said earlier during the day that it was "realistic" to assume Greece will need additional money from the rest of the euro zone.

The ECB left its main interest rate on hold earlier on Thursday, as activity in the euro zone recovers, but at a slow pace.

"I can't share (markets') enthusiasm, this is just the beginning. These shoots are still very green," Draghi said, with regards to economic activity in the region. Speaking at a news conference, he reiterated the ECB's decision to keep interest rates low for an "extended period of time".

"Our monetary policy stance will remain accommodative for as long as necessary, in line with the forward guidance provided in July. The Governing Council confirms that it expects the key ECB interest rates to remain at present or lower levels for an extended period of time," Draghi said.

The euro fell to a six-and-a-half week low following Draghi's comments and European stocks extended gains.

Draghi said the ECB had upgraded its outlook for the euro zone, and now expected the economy to contract by 0.4 percent in 2013, before expanding by 1.0 percent in 2014. This was an improvement on June, when the ECB had forecast a contraction of 0.6 percent for this year, followed by 1.1 percent growth next year.

Recent economic reports point to a clear improvement in the euro zone, but analysts have warned that it is still far too early to give the region the all-clear.

"Confidence indicators out to August confirm the expected gradual improvement in economic activity from low levels," Draghi said.

Unemployment remains high in the euro region — 12.1 percent in July — and small- and medium-sized firms are still struggling to attract bank loans. Added to that is the recent threat of military action in Syria, which has sent oil prices higher, further complicating the path to economic recovery.

Draghi first announced his policy of long-term low rates in July, but has refused to be drawn on when exactly rates could start rising.

(Read More: Euro slides as Draghi commits to to rates)

His announcement marked a departure from the ECB's previous policy to never pre-commit to policy decisions.

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