ECB chief tries to calm growing tensions in euro zone

 

EUROPEAN CENTRAL Bank (ECB) chief Jean-Claude Trichet tried to damp down mounting turmoil in the euro zone yesterday, saying he knows of nothing that would threaten the stability of the single currency in a fundamental way.

Mr Trichet told MEPs that the situation was “very, very difficult” as markets endured yet another rocky day, but said the determination of the EU authorities to overcome the crisis should not be dismissed.

The euro fell to its lowest level against the US dollar for 10 weeks and the borrowing costs of Spain, Belgium and Italy spiked to their highest euro-era level as investors questioned whether Ireland’s bailout would soon be followed by others.

At the European Parliament in Brussels, however, Mr Trichet pointed to a “positive underlying momentum” in the economic recovery of the euro zone after the worst recession since the second World War.

Mr Trichet will preside over a key meeting in Frankfurt tomorrow of the ECB’s governing council, at which it will determine how much exceptional support for Europe’s banks will remain in place beyond January.

The meeting will be closely watched, as investors are anxious to see whether the ECB takes any steps to slow down its efforts to scale back crisis support for the banking sector.

Mr Trichet gave no clue as to the ECB’s intentions, but sought to ease the tension that has roiled the euro zone since Ireland came under pressure to accept external aid.

“I don’t believe financial stability in the euro zone, given what I know, could really be called into question in a serious way. Now, OK, for the moment, we can see that there is a problem; but I don’t think it will really be called into question fundamentally . . .” he said.

“I would say, by the way, that pundits are tending to underestimate the determination of governments and the determination of the college that makes up the euro group, and indeed the 27-member state council.”

His comments, in the late afternoon, had little impact on markets.

Meanwhile, Taoiseach Brian Cowen has rejected Opposition claims that the EU-IMF bailout will tie the hands of future governments.

He said it was a matter for any future government to decide whether it wanted to draw down the money from the facility.

“There is no fettering of future governments. If a future government could go back to the markets to borrow at better rates than are available now, of course it would do so. That is what any government would do,” Mr Cowen told the Dáil.

“Where else do the Opposition members suggest the money be obtained? We can obtain it either on the money markets at 9 per cent or on the terms of our European partners at 5.8 per cent,” he added.

Mr Cowen insisted the bailout did not required the approval of the Dáil. He said the first instalment of money will be in the 2011 budget, and that would be put to the Dáil.

Mr Cowen denied Ireland was paying a higher rate of interest than Greece on the bailout facility.

“The rate of 5.8 per cent over seven and a half years compares very favourably with the 5.2 per cent over three years obtained by Greece. If it is such a bad deal, why is Greece looking for terms like ours?” asked the Taoiseach.

Mr Cowen also attacked the Labour Party for stating at the weekend that Ireland was “banjaxed” and was “an economic corpse”.

Fine Gael leader Enda Kenny described the bailout as “a foul financial deal”, while Labour Party leader Eamon Gilmore described it as a “sell-out”.