Brussels, 05/05/2011 (Agence Europe) - In Helsinki on Thursday 5 May, the European Central Bank (ECB) Governing Council decided to keep euro interests unchanged at 1.25% for the main refinancing operations, 2% for the marginal lending facility and 0.5% for the deposit facility, after deciding in April to raise rates for the first time since 2008 (see EUROPE 10354). Jean-Claude Trichet said that the meeting had given a very warm welcome to the new governor of the Bundesbank in Germany, Jens Weidmann, who has taken over from Axel Weber.
The president of the ECB, Jean-Claude Trichet, said that there were increased risks of inflation because of the rise in raw materials, particularly fuel, and tension in North Africa and the Middle East, and inflation would probably remain well above 2% over the next few months. He said the bank was following inflation very closely and would take whatever decisions were needed to fulfil its duty of keeping inflation below 2%. Eurostat reports that annual inflation stood at 2.8% in the eurozone in April, up from 2.7% in March. Trichet warned about the rebound effect of increased prices in the shops leading to higher pay rises, which could then increase inflation still further. In answer to a reporter suggesting that the ECB was taking a more relaxed line about inflation, Trichet pointed out that the ECB was one of the first central banks to increase interest rates. Trichet also rejected the argument that the ECB had decided not to opt for a further interest rate rise because of problems in peripheral eurozone countries. He said that the countries that were experiencing very encouraging growth at the moment were the very ones that had great problems four or five years ago.
Explaining that economic growth was consolidating in the eurozone with a gradual increase in lending to the real economy, Trichet urged the banks to continue to clean up their balance sheets. The special funding mechanisms introduced to help banks unable to borrow money cheaply on the markets will continue until further notice.
The ECB raised the alarm about the consolidation of public finance in the member states because of the danger that some countries would not be able to meet the targets set by the ECOFIN Council for reducing their excess deficits, explained Trichet. He said it was crucial that promises were kept, if necessary by means of further corrective measures, adding that this applied to Greece and other countries Asked about whether Greece's debt should be restructured, he said that Athens was introducing a structural adjustment plan in return for financial aid and the ECB called for the plan to be introduced. He said that any losses that the ECB would incur in the event of restructuring the Greek sovereign debt would not be a problem. Commenting on the criticisms from former Irish Finance Minister Lenihan that the attitude of some of the members of the ECB Governing Council had forced Ireland to request financial aid in 2010, Trichet said that there had never been any precedent to the euro system's involvement vis-à-vis Ireland (see EUROPE 10365 and separate article about the ECB's view on the agreement to provide financial aid to Portugal).
The ECB made a repeated call for stricter economic governance rules in Europe, with more automatic issuing of penalties and a clearer focus on less economically competitive countries. (M.B./transl.fl)