Trichet welcomes clarity on euro zone default plans

By John O’Donnell

BRUSSELS (BestGrowthStock) – European Central Bank President Jean-Claude Trichet on Tuesday welcomed Europe’s decision to mirror the IMF’s approach to private investors in sovereign defaults and attacked talk of currency wars.

Europe has softened its tone on private investor involvement in any possible future default in recent days, saying it will follow the example of the International Monetary Fund rather than putting in place an automatic process.

“I had called upon governments to clarify their position and avoid ambiguity vis-a-vis investors, savers and market participants,” Trichet said at an European Parliament hearing.

“In stating very explicitly that Europe will be “fully consistent with IMF policy” and “IMF practices” as regards private sector involvement, the position made public by governments last Sunday is a useful clarification.”

German-led plans to force banks and other investors to shoulder some of the burden of any default helped spark the renewed surge in euro zone debt tensions that continues to drive fears about the future of the euro.

Trichet also backed the ECB’s current view that the euro zone economy and lending environment had continued to improve and decried a recent war of words over currency levels.

“The concept of “currency war” is one which is completely inappropriate to use,” he said. “We need no “wars” of any kind, but a strong and renewed commitment to confident and resolute cooperation.”

He repeated that excess FX volatility had adverse implications for economic and financial stability and again urged developing countries allow their currencies more flexibility.

The ECB is expected to keep interest rates at their current record low of 1.0 percent at its December meeting on Thursday, with economists currently expecting them to stay there until late next year.

It is also due to announce what crisis support measures it will keep in place beyond their current expiry date of mid-January at this week’s meeting.

Against the backdrop of intensifying euro zone debt market tensions ECB experts are beginning to doubt whether the bank will press on with removing support, as ECB heavyweight Juergen Stark had confidently said they would do earlier in the month. (for story click)

A slim majority of money market traders polled by Reuters on Tuesday said they expect it to keep unrestricted cash on tap in all its lending operations.

Trichet sidestepped questions on the ECB’s support plan during a Q+A session after his speech, citing the normal etiquette for ECB members not to comment on monetary policy issues shortly before each meeting.

He also ducked questions on how the ECB would proceed with its controversial program of buying euro zone government bonds but concluded his appearance in Brussels by stressing the situation in the euro zone would continue to be demanding for some time.


However, Trichet said that euro zone growth had consistently provided positive surprises during the crisis, and provided perhaps a subtle hint on new forecasts from in-house ECB economists which will be published on Thursday.

“We have had two good surprises in comparison with the (euro zone growth) forecasts. But it is perhaps a bit better than forecast. We will be publishing our forecasts in two days’ time and we will see what they say. But that has been the case thus far,” he said.

Trichet also struck a pragmatic note on the idea of bonds issued jointly by euro zone countries. The topic remains controversial in the currency union as it treads into the taboo territory of fiscal transfers.

“Until now, we ourselves have not been a promoter of the so-called (joint) euro bonds, (but) of course, you should never say never,” he said.

(for full speech click: for highlights of comments from Q+A session click)

(Reporting by John O’Donnell, writing by Marc Jones and Sakari Suoninen, editing by Catherine Evans/Ruth Pitchford)

Trichet welcomes clarity on euro zone default plans