ECB's Trichet: Greek Default Is 'Out of the Question'

Thursday, 06 May 2010 09:28 AM

The European Central Bank expects the euro zone's economy to grow at a moderate pace in 2010 but the outlook is subject to significant uncertainty, bank President Jean-Claude Trichet said.

However, Trichet said some national data were encouraging, and that some figures which were released on Thursday were better than expected.

"We expect the euro area economy to expand at a moderate pace in 2010, but growth patterns could be uneven in an environment of high uncertainty," Trichet said during a news conference after the ECB kept interest rates at a record low of 1.0 percent.

A future adjustment in the size of banks' balance sheets cannot be ruled out, Trichet added.

Trichet said the decision to suspend ratings requirements for Greek debt was taken because the Balkan country's austerity program was a very ambitious one, and the central bank wanted to show its support.

"Default is, for me, out of question. It's as simple as that," he said. "We did not discuss the matter and I have nothing else to say than that."

Greece and Portugal are "not in the same boat," he said when asked about Lisbon's problems.

He also said the bank did not discuss the option of buying euro zone government bonds during its meeting.

He had said on Sunday that the ECB had not made a decision to buy bonds "at this stage," a similar form of words to that he used earlier in the year about changes to the collateral framework.

This, coupled with rising yields for many euro zone government bonds in the wake of Greece's debt woes, prompted economists to speculate the ECB might abandon its opposition to buying government bonds.

European laws prevent the ECB from buying debt directly from governments in the way the United States and Britain's central banks have done during the financial crisis.

However, it can get round this restriction by buying debt second-hand from banks.

The Greek debt crisis has driven the cost of its sovereign debt and its insurance to record levels.

The problems have also started to push up the cost of other euro zone members with strained public finances such as Portugal, Spain and Ireland.

© 2015 Thomson/Reuters. All rights reserved.

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