TODAY MARKS the last monthly news conference for European Central Bank president Jean-Claude Trichet before he steps down — but he can’t relax yet.
Markets are anxiously looking to the ECB’s monthly rates meeting today, seeking more measures to support shaky banks that are under pressure from the eurozone’s government debt crisis.
Economists think the bank could make new 6- or 12-month loans available to banks in the 17 countries that use the euro. Others have declined to rule out a surprise cut to interest rates at the meeting of the 23-member rate-setting council.
That cut is not expected, however, as the bank seeks to balance rising inflation with the danger of making credit too difficult to come by.
Cuts to the rate had been made more probable by the economic slowdown of the second quarter – where German and French economies ground to a virtual halt.
The recent statistics about inflation – which has reached 3 per cent in the 17-member Eurozone – may put a dent in hopes of a reduced rate, however; reducing the rate would mean a greater supply of cash, which in turn could fuel further inflation.
Trichet, who will be succeeded by the Bank of Italy’s head Mario Draghi when his eight-year term expires at the end of the month, typically prepares markets ahead of time for a change in rates through public speeches. So far, he has not hinted at any such move.
But markets will be eager to hear of any new help for the financial sector, whose troubles threatened this week to claim a first victim, Dexia, a Franco-Belgian bank heavily exposed to Greek government bonds.
The French finance ministry said yesterday it would offer a “solid, structured solution” on Thursday for Dexia, whose shares plunged this week.
In Germany, Deutsche Bank said it would take €250 million in additional writedowns on the Greek bonds it holds – essentially devaluing the bonds to what it believes their current ‘value’ are – and scrapped its profit forecast.
Experts and investors are increasingly resigned to the view that Greece will eventually default on its debts.
The country faces bankruptcy if it does not get its next €8 billion installment of money under a 2010 bailout; the European Commission, International Monetary Fund and ECB say a decision won’t come until the end of the month.
That delay leaves the ECB holding the line against the crisis through its purchases of Italian and Spanish government bonds.
The purchases keep those countries’ borrowing costs in the bond markets down, and avoid the fear-fueled spiral of higher rates that drove Greece, Ireland and Portugal to need bailouts.
Additional reporting by AP
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