Trichet defends ECB independence


Jean-Claude Trichet insisted to European parliamentarians yesterday that the European Central Bank remains fully independent of national governments, despite the Bank's emergency purchase of Spanish and Italian sovereign bonds earlier this month. The ECB's President pointed out that the Bank has only bought bonds in the secondary market (rather than directly from governments) and called for all eurozone states to show "strict respect" for budgetary discipline in exchange for such market assistance.

Mr Trichet said he expected a "modest pace" of eurozone growth and for inflation to remain above 2 per cent in the coming months. He also warned members of the European Parliament's key economics committee that economic uncertainty remained "particularly high".

Mr Trichet was addressing the European Parliament just one day after a public disagreement with the new head of the International Monetary Fund, Christine Lagarde, at an annual meeting of central bankers in Jackson Hole, Wyoming. On Sunday, Ms Lagarde issued a surprise call for an "urgent" recapitalisation of Europe's weakest banks. Mr Trichet countered that any suggestion that Europe faces a liquidity problem was "plain wrong". Other European officials, who have been struggling to convince financial markets that Europe's banks are already adequately capitalised, called Ms Lagarde's remarks "misguided".

The ECB's purchases of 10-year Italian and Spanish sovereign bonds since 8 August have succeeded in driving down the interest rates of those two nations to tolerable levels.

But many fear that those rates could rise again unless growth on the eurozone periphery recovers. Uncertainty also remains about whether the rescue package agreed by eurozone leaders on 21 July in Brussels will be delivered. National parliaments have yet to ratify the deal to award Greece further emergency lending of €109bn and to allow the European Financial Stability Facility to support Spain and Italy by buying their bonds.

Germany's deputy foreign minister, Werner Hoyer, warned the Finnish government yesterday not to "rock the boat" by demanding that Greece post collateral in return for Helsinki contributing to the latest stage of the Greek bailout. If other governments insist on similar conditions the deal could unravel.

Two of Greece's largest banks, Alpha and Eurobank, announced yesterday they will merge as officials try to shore up that nation's fragile financial sector.

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