Trichet insists ECB did not bow to EU governments

10th May 2010, Comments 0 comments

ECB chief Jean-Claude Trichet insisted Monday that the European Central Bank did not bow to political pressure to intervene in the markets under a eurozone rescue plan, and stressed that EU governments must meet their fiscal targets.

His comments came after central bankers agreed during a regular meeting at the Bank for International Settlements that the global recovery was not only "better than expected" but was also accelerating.

"We are fiercely and totally independent. This decision is the decision of the governing council and not the result of any kind of pressure of any sort," the European Central Bank chief stressed.

As part of a 750-billion-euro (trillion-dollar) rescue package for eurozone economies, the ECB said it would intervene in "public and private debt securities markets to ensure depth and liquidity."

Analysts said the move compromised the central bank's independence as it would effectively be buying government debt, allowing governments a freer hand to raise money when it should be policing their efforts to do so.

But Trichet said that the ECB's governing council had made its decision "taking into account the circumstances to do what we had to do, totally independently of any kind of signalling or suggestion or whatever.

"I told that to the various governments of Europe in the fiercest manner, including when I had a meeting with the heads. That's as clear as that," he said.

Trichet insisted that the ECB had made its own judgment that "the normal transmission of our monetary policy was hampered" and that a number of markets were "dysfunctional."

"That is the reason why we took our decision," he said, adding that the purchase of debt securities has begun, although he would not discuss the scope of the operation nor which countries it involved.

"I will not say (anything about) division of labour, it's a euro-system operation. It started this morning," he said.

Trichet also stressed that it was crucial that the governments committed to taking all necessary measures to meet their fiscal targets.

"It is absolutely crucial, absolutely essential in the view of the governing council of the ECB," he said.

"What is of extreme importance is the rigorous and strict respect by the governments... of the (European Union) rules on fiscal policies," he said.

Trichet pointed out that the ECB had to "fight to preserve the rules in 2003, 2004, 2005, at the time when they are challenged."

"Today they are fully vindicated," he said.

Under EU rules, a country must keep its public or budget deficit to less than three percent of Gross Domestic Product and total debt to less than 60 percent but many countries, including Greece, breached those limits.

Speaking on behalf of a group of central bankers meeting at the BIS, Trichet said the global recovery was "not only confirmed but has some elements, at a global level, of acceleration.

"A number of observations, particularly in the emerging world, show that the present data are better than expected," he added, pointing to accelerating growth "in a large number of countries."

Trichet said the global recovery had features "which ... qualify as sustained."

Despite the Greek debt crisis, which hammered stock markets and the European single currency before Monday's massive aid package was unveiled, Trichet said the signs of recovery were also evident in eurozone economies.

"We considered that at the global level we have the positive signal. This positive signal, we also have (it) at the EU level," he said.

© 2010 AFP

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