Tags: EU | Europe | Financial | Crisis

ECB Chief Trichet: Euro Still Credible Currency But Watch Complacency

Friday, 03 Dec 2010 11:45 AM

The European Central Bank's chief says the euro remains a "credible" currency despite the debt crisis that has required the bailouts of Ireland and Greece and raised worries about the future of the shared currency.

A day after the ECB extended its special support measures for banks, Jean-Claude Trichet on Friday urged European governments to make a "quantum leap" toward reforming and cleaning up budgets to avoid falling deeper into turmoil. Speaking in Paris, he said, "This is no time for complacency."

Trichet would not comment Friday on whether the ECB has increased its purchases of government bonds by highly indebted countries like Ireland or Portugal to ease their borrowing rates.

Analysts and traders, however, speculate that the central bank has increased these purchases in recent days. Confirmation will arrive Monday, when the ECB publishes figures that will reveal how much it has bought in the past week, since Ireland's bailout failed to ease market worries.

Trichet nevertheless insisted the 16-nation euro itself is not at risk.

"The euro is a credible currency. The euro is a currency that is considered just as credible for the next 10 years as for the last 12 years," he said.

The currency was steady against the dollar Friday, buoyed by Trichet's pledge to extend crisis liquidity measures to banks and speculation the bond purchases are ongoing. The euro bought $1.3209 in morning European trading Friday, about the same as the night before in New York.

The ECB, the European Union and the 16 governments that share the euro are struggling to contain a crisis caused by too much state debt in some countries. They are trying to reassure bond investors that countries will not default and keep the interest rates on their debt loads from rising so high they can no longer afford to borrow.

Governments are slashing spending and raising taxes to cut their deficits, but that has raised fears that austerity will slow growth and make debt even harder to pay.

Asked whether European Union governments should increase their bailout funds, Trichet said, "We are encouraging governments to go as far as possible to being commensurate with the challenges." He did not elaborate.

Trichet is meeting with French President Nicolas Sarkozy later Friday to discuss the situation in the eurozone.

Despite recent revival of euro-skepticism, he said, "I have no doubt about the deep sentiment of the Europeans, of all Europeans, that their future rests on the deepening of their union."

The Spanish government is meeting Friday to approve austerity measures that it hopes will soothe investor fears about its debt. The moves include selling off nearly third of its national lottery, partially privatizing airports, cutting a jobless benefit and trimming taxes for small companies.

Greece's austerity measures in exchange for the bailout have prompted widespread protest. On Friday, some 1,500 disabled people protested in central Athens against benefit cuts made by the government to lower the national debt load.

By offering more support for the economy, Trichet has clearly changed course from last month's meeting, when he indicated Europe was doing well enough for the bank to gradually phase out its emergency liquidity measures.

Last weekend's crisis bailout of Ireland changed all that, however. Now markets are worrying that Portugal and even much larger Spain might join Greece and Ireland in needing a bailout.

The ECB decided that its one-week, one-month and three-month funding operations will continue at a fixed rate and at full allotment through to the first quarter of 2011. Those operations reduce anxiety in the financial system by offering banks all the short-term credit they want at the central bank's record low rates.

Trichet indicated that those measures could be extended even further if needed and that the central bank kept its mind open to increasing its bond buying program.

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The European Central Bank's chief says the euro remains a credible currency despite the debt crisis that has required the bailouts of Ireland and Greece and raised worries about the future of the shared currency. A day after the ECB extended its special support measures...
EU,Europe,Financial,Crisis
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2010-45-03
Friday, 03 Dec 2010 11:45 AM
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