ECB's Coeure: Euro zone shouldn't have own rules on govt bonds - CNBC

FRANKFURT (Reuters) - The euro zone should not go it alone and start assigning risk weightings to government bonds on bank's books if such a move is not internationally agreed, European Central Bank Executive Board member Benoit Coeure said on Tuesday.

Coeure said that the proper arena for any potential discussions should be the Basel Committee and that the common rules should then be applied locally.

Basel III banking regulations, which are being gradually phased in, treat all local-currency government bonds as risk-free, a rule which has been criticised particularly by German central bankers.

"There is no reason a priori any particular kind of asset should be treated as risk-free by banks. That's a general principle that deserves to be supported," Coeure told TV station CNBC in an interview, when asked about the treatment of sovereign debt.

"It is an important discussion, but it takes place in the Basel Committee for Banking Supervision. It is not a European discussion."

ECB Governing Council member Jens Weidmann said on Monday that ending the preferential treatment of government bonds on bank balance sheets would contribute to a more stable financial system.

"Sovereign bonds should be adequately risk-weighted, and exposure to individual sovereign debt should be capped, as is already the case for private debt," Weidmann said.

Throughout the euro zone debt crisis, banks, particularly in Italy and Spain, have bought vast amounts of sovereign bonds. Italian banks held more than 400 billion euros ($540 billion) worth of government debt as of September, while Spanish banks held 300 billion, ECB data has shown.

Coeure repeated the ECB line that it is technically ready to make banks pay for the funds they deposit overnight at the central bank but that negative interest rates are just one of the tools in its armoury.

"We have a range of instruments that we would be ready to use if we see further risks to price stability materialising," Coeure added without specifying the other tools.

Coeure also said the central bank's main scenario is one where inflation will rise gradually, adding that the current inflation rate of 0.7 percent needs to be watched.

"We'll be monitoring very closely these numbers," he said of the low headline inflation figures.

(This story was corrected to fix headline, story to show Coeure called for standard international rules on bond weightings, not for Basel to discuss dropping risk-free bond weighting)

(Reporting by Sakari Suoninen; Editing by Hugh Lawson)