European Central Bank (ECB) President Mario Draghi on Wednesday urged national governments and banks in the eurozone to do their own job in tackling the debt crisis.

While applauding the fiscal consolidation measures taken by national governments and warning against the "contractionary effects" of these measures, the ECB head urged them to "persevere, to continue on that path."

"We are probably in the most difficult phases of a process where austerity, where fiscal consolidation, has been, or is being, undertaken and is now starting to, in a sense, reverberate its contractionary effects," Draghi said in a speech to the European Parliament's Economic and Monetary Affairs Committee.

Pledging to "create an environment which would be as forthcoming, as favorable, to this process as possible," he threw the ball to national governments and banks.

"Now the ball is entirely, squarely, in the court of governments and banks," Draghi told members of the European Parliament.

"Liquidity support cannot substitute for capital or for sound fiscal and structural policies that bring about sustainable growth and stability in the European economy," he added.

He made the comments in response to appeals for more monetary measures from the ECB to stem the debt and banking crisis, even after it has provided low-cost loans of 1 trillion euros (1.32 trillion U.S. dollars) to banks in the eurozone through two long-term refinancing operations (LTRO).

The LTRO funding, issued in two batches last November and this February to hundreds of eurozone banks, have bought "precious" time and policy room for struggling governments to adjust their economies and for banks to strengthen their balance sheets, analysts and ECB officials have said.

Draghi apparently gave a nod to the follow-up action taken by national governments and banks, saying, "They -- governments and banks -- are giving some evidence that they are actually using this time in a productive way."

ACT WITHIN TREATIES

The ECB chief attributed its refusal to carry out a U.S.-style monetary easing program to its special mandate as set in the European Union (EU) treaties.

"The limits of the treaty prohibit monetary financing. The primary mandate of the ECB is ensuring price stability in the medium term for the whole of the euro area," Draghi said.

"We have to, in a sense, walk this, in a sense, thin but delicate balance where we want to preserve the credibility of the ECB because it's one of the few things left," he added.

Draghi also brushed off concerns over the inflationary risks the LTRO funding might have added to the economy.

"We also hear concerns that the Eurosystem is exposing itself to excessive risks. I would like to underscore that the expansion of our balance sheet is being managed with extreme prudence."

"Let me emphasize that our non-standard measures are not a constraint on setting interest rates in line with what is required to ensure price stability in the medium term," Draghi added.

He vowed that the ECB's Governing Council will "use all the instruments at its disposal to counter possible upside risks to price stability should they materialize."

While listing "higher-than-expected oil prices and further indirect tax increases" as the upside risks to inflation, Draghi said "the underlying price pressures should remain modest" and risks to the price stability are "broadly balanced."

The ECB's Governming Council continues to expect annual inflation rates to fall below 2 percent in early 2013, he added.