EU backs Trichet as ECB president

European Union leaders yesterday endorsed Mr Jean-Claude Trichet's attempt to become president of the European Central Bank (ECB), paving the way for his appointment in October and raising hopes of a further cut in euro-zone interest rates after the bank's summer recess.

French officials said European leaders meeting in Greece had unanimously confirmed Mr Trichet as a candidate for the ECB post and would add to the EU summit's conclusions a statement backing him. Mr Trichet is now likely to be nominated by finance ministers when they meet on July 15th. He will then face confirmation hearings in the European parliament in September before being formally appointed by EU leaders the following month.

Economists said such a timetable was likely to raise chances of a further rate cut in September as it would allow Mr Wim Duisenberg, ECB president, to clear the decks for his successor. Mr Duisenberg played down prospects of further easing after the ECB cut rates to 2 per cent, its lowest since the second World War, although he insisted there was still room for manoeuvre.

But with euro-zone growth set to remain weak and a fast-falling inflation rate fuelling fears of deflation, especially in Germany, markets have been expecting the ECB to ease rates again before the end of the year. Economists said the ECB's September 4th rate-setting meeting, potentially Mr Duisenberg's last, looked the likely date for the next cut.

Mr Luigi Buttiglione of Barclays Capital said a cut in September "would help take some of the pressure off Trichet in his first few meetings".

It would also coincide with the updating of the ECB's inflation and growth projections, which have a growing influence over monetary policy decisions.

The past two rate cuts have been justified by sharp revisions to the forecasts. Mr Trichet's path to the presidency of the ECB was cleared this week when he was acquitted of charges relating to the collapse of Crédit Lyonnais, the then state-owned French bank, in the early 1990s.

The 60-year-old Frenchman has been lined up as the next ECB chief since 1998 when President Jacques Chirac secured agreement that Mr Duisenberg would step down during his eight-year term to make way for Mr Trichet.

The Paris public prosecutor said on Thursday he would not appeal against the Trichet verdict, removing the final hurdle to the succession.

Mr Trichet was one of the architects of France's competitive disinflation strategy from the mid-1980s which ended a spate of humiliating devaluations and helped the French kick the inflation habit.

Financial markets regard him as a safe pair of hands, likely to follow Mr Duisenberg's cautious policies and resist political pressure to give boosting growth precedence over fighting inflation. - (Financial Times Service, Reuters)