Tags: EU | Europe | Interest | Rates

ECB's Trichet Set for Another Greek Grilling

Thursday, 04 Feb 2010 07:16 AM

The European Central Bank has a chance Thursday to react to Greece's latest efforts to fix a deficit crisis that has shaken the European Union, while the Bank of England is expected to say whether it will extend its effort to boost Britain's money supply.

Neither central bank is expected to touch interest rates at their meetings Thursday, with Britain's at 0.5 percent and the Frankfurt-based ECB at 1 percent, both record lows aimed at boosted patchy growth in Britain and the 16-country eurozone.

European Central Bank president Jean-Claude Trichet is not expected to alter his mantra that the recovery in the eurozone will be "uneven" and that growth would only be "moderate."

For the second month running, his monthly news conference will likely be hijacked by questions about the crisis surrounding Greece's huge budget deficit.

Investors will be particularly interested to see whether Trichet sticks with his hard line toward Greece — three weeks ago he slammed talk of a Greek departure from the euro as an "absurd hypothesis" and dismissed any suggestions that the central bank would get involved in any financial rescue.

Analysts think that Trichet will continue to distance the ECB from any idea of helping Greece and will instead leave it in the in-tray of the European Union member governments — particularly Germany and France.

On Wednesday, the European Commission gave its cautious backing to the Greek government's plan to slash the budget deficit from around 13 percent in 2009 to below 3 percent in 2012.

"The ECB struck a tough line last month, which left us in little doubt that if help was needed for Greece it would not come from the ECB but from the eurogroup or the fiscal authorities in Europe, and we do not expect this month's press conference to alter this view," said Nick Matthews, senior European economist at the Royal Bank of Scotland.

Trichet's expected attempt to deflect the issue from the European Central Bank does not mean he's not worried.

The clear worry for Trichet and his fellow rate-setters is that problems on the periphery of the eurozone and the financial burden of a bailout from the core countries like Germany and France could derail the recovery from recession.

The Bank of England meanwhile is also expected to make tentative moves to readjusting its policy when it also completes its monthly monetary policy meeting.

In addition to keeping its main interest rate unchanged at the record low of 0.5 percent, the Bank is expected by most observers to announce that it will not be seeking government approval for an extension to its current 200 billion pound financial asset buying program, even though figures last week showed that Britain's recovery from recession in the final quarter of 2009 could not have been any weaker at 0.1 percent.

The asset purchases increase the supply of money in the economy, which can support growth in slack times.

However, Jamie Dannhauser, an analyst at Lombard Street Research, thinks there's a chance that the Bank will ask to have its asset purchase program extended as the recovery is proving to be way weaker than anticipated.

"The near-unanimous expectation among City economists of 'no change' suggests the markets may be underestimating the chance of a surprise," said Dannhauser. "At the very least, we expect an extension to be hotly debated."

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The European Central Bank has a chance Thursday to react to Greece's latest efforts to fix a deficit crisis that has shaken the European Union, while the Bank of England is expected to say whether it will extend its effort to boost Britain's money supply.Neither central...
EU,Europe,Interest,Rates
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2010-16-04
Thursday, 04 Feb 2010 07:16 AM
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