Central banks 'stand ready' to pump liquidity: Trichet

12th September 2011, Comments 0 comments

Central banks pledged their readiness to provide short-term funds to banks, ECB chief Jean-Claude Trichet said on Monday, stressing that the European Central Bank can supply unlimited amounts of liquidity.

Trichet also told Greece to implement the reforms it has promised to reduce its public debt, as markets slumped to new low levels owing to concern that Athens would default.

"We stand ready to provide liquidity to banks as required, it is again a sentiment that we all expressed," the head of the European Central Bank said after a meeting with fellow central bankers.

"In the case of the euro area, we have the capacity as a central bank to provide liquidity on an unlimited basis and at fixed rate," he added.

The ECB has about 1.7 to 1.8 trillion euros worth of collateral on its books, while in the balance sheets of the commercial banks, there are another four to five trillion euros' worth, noted Trichet.

"All this collateral can be transformed into liquidity... at fixed rates," he said.

Trichet's statement came as markets fell amid acute tension on Monday owing to alarm that Germany is losing patience with Athens and its budget crisis.

A raft of comments by senior German politicians raising the spectre of an "orderly default" for Greece and even an ignominious eurozone exit pushed the euro to a 10-year low against the yen.

Stock markets also plunged as the G7 group of rich nations admitted that current economic problems were so complex that a unified response was impossible.

Trichet reiterated a warning to Greece to step up its reforms.

"All Europeans, including the executive branch of Germany ... are calling the Greek government to fully deliver on its commitment," said Trichet.

"The international institutions, the Commission in liaison with the ECB are calling upon on the Greek government with great firmness, because it is in the interest of the Greek economy, the people of Greece," he stressed.

Trichet noted that if Athens lives up to its pledges, then Greece "will be in a better situation than in any other assumption.

"But it relies upon them. We are examining the situation at this stage," said the ECB chief.

IMF, European Commission and European Central Bank experts will head to Athens this week to look at releasing a new eight-billion-euro tranche of loans from the 110-billion-euro rescue package agreed last year.

Beyond Greece, Trichet said that "those who have an issue of confidence because they are not sufficiently convincing as regard their medium term fiscal policy, have to take extremely seriously this fiscal policy issue in order to regain control of medium term evolution and inspire confidence to their own economy, their households, their entreprises, their investors."

Despite the morose debt crisis, however, central bankers meeting in Basel assessed that the world economy was not tumbling into another recession.

"We don't see a recession, but we see a slowing down, in comparison of what have been observed in a recent period," said Trichet.

© 2011 AFP

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