ECB's Nagel says bond spreads are fair until proven otherwise

FRANKFURT (Reuters) - European Central Bank policymaker Joachim Nagel raised the bar for an ECB intervention on the bond market on Tuesday, saying he assumed differences in yields to be "fundamentally justified" until proven otherwise.

The ECB is working on a new bond-buying scheme to curb borrowing costs for Italy and other indebted countries in the euro zone's south, which have been rising faster than Germany's since the central bank stopped purchases and announced plans to raise interest rates.

"The financial markets are now making a greater differentiation between different risks due to the changed monetary policy outlook," Nagel, the head of Germany's Bundesbank, told an event.

"I assume that these price developments are fundamentally justified, as long as there is no evidence to the contrary."

The ECB is expected to unveil the new scheme on July 21 and attach conditions such as that a country's debt is deemed sustainable or that it complies with European Union economic recommendations and budget rules.

Its main argument is that such spreads are not always justified by economic fundamentals and that they create "fragmentation" - or uneven financing conditions across the 19 countries that share the euro.

At an emergency meeting on June 15, Nagel had objected to the ECB announcing plans to speed up work on the new tool although he has since laid out the conditions that would make it acceptable to him.

(Reporting By Francesco Canepa; Editing by Tomasz Janowski)