ANALYSIS:Trichet refuses to say whether ECB bounced the Government into accepting rescue deal, writes SIMON CARSWELL
ON A day when “a big bazooka” announcement from the European Central Bank to quell the turbulent markets was expected, the bank’s president Jean-Claude Trichet failed to deliver at his monthly press conference. His only moves were a continuation of the bank’s purchasing of the government bonds of the weakest euro area countries, including Ireland, and cheap loans to struggling banks through the first three months of next year.
All this was temporary, he said, until the money markets returned to some normality.
The ECB was reported to be heavily buying up Portuguese and Irish government bonds yesterday as the premiums investors demand to hold this debt dropped.
Some €67 billion has been spent by the bank since May when the Greek debt crisis blew up.
Economists say the purchases need to be far higher, up to €2,000 billion, to stem the contagion spreading to Europe’s bigger nations following the €85 billion bailout of Ireland negotiated with the European Union and the International Monetary Fund.
Trichet refused to be drawn on whether the bank bounced the Government into accepting the rescue package. The decision was the Government’s, he said, and it was “absolutely necessary”.
It was one of several questions on Ireland that Trichet batted away. Asked whether the ECB voted on the Central Bank in Dublin providing emergency lending assistance to the Irish banks, Trichet said this type of lending was an “ongoing concept” across national central banks.
He had no comment on a suggestion that the Irish Government should follow Iceland and only cover the domestic liabilities of the banks.
Asked more generally whether Germany and Ireland could survive in the same currency region, Trichet pointed to the different regions in the US. He became most animated when it was suggested that Germany might be better off outside the euro, pointing to the benefits Germany had enjoyed from years of price stability.
He declined to discuss Irish bank borrowings from the ECB. He also had no comment on whether the ECB did not have other tools to deal with the struggling banks, such as an insurance scheme to cover potential losses, something Central Bank governor Patrick Honohan had suggested.
The Irish plan needed credibility in the market, he said, and this would be achieved over time, but he refused to be drawn on the hedge funds betting against euro states. Markets did not change behaviour abruptly, he said, but needed to be “progressively convinced” the Irish plan could work. In the absence of new anti-crisis measures, Trichet left the market disappointed.
