As expected the ECB left rates on hold at 1 per cent on Thursday, in line with what 80 economists surveyed by Reuters had forecast.
No surprises there, then.
The euro, nevertheless, fell to session lows following comments from ECB president Jean-Claude Trichet reiterating that a strong US currency was important.
And there was more news from Trichet’s traditional post-rate announcement press conference on Greece too:
RTRS-ECB’S TRICHET – EUROSYSTEM WILL DO WHAT WE CAN TO TECHNICALLY HELP GOVT TO GO IN RIGHT DIRECTION
RTRS-TRICHET – MAJOR RESPONSIBILITY LIES WITH GREEK GOVERNMENT
RTRS-TRICHET ON GREECE – THE GOVERNMENT IS GETTING THE MESSAGE OF PAST LESSONS VERY CLEARLY
And, more tellingly:
RTRS – TRICHET – GREEK ECONOMY IS ABOUT 2.5-3PCT OF EURO ZONE
“We will not change our collateral policy for the sake of any particular country,”
So does that mean Trichet thinks Greece is not too big to fail then?
Here’s some comment from Julian Callow over at Barclays Capital (our emphasis):
Much as we expected, today’s Introductory Statement (see below for fully official text) is remarkably similar to that of a month ago, only really seeming to change words when strictly necessary in the key opening and concluding paragraphs. In the Q+A, there were relatively few surprises. Of some interest, perhaps, Mr Trichet signalled that the ECB expected EONIA (which since last July has been around 0.35% and more recently a little lower still) to remain close to the deposit rate (0.25%) for a number of months, given the presence of excess bank reserves (see Q+A below).
He was vague in responding to a subsequent question about how the ECB might view the monetary policy consequences of a future draining of excess liquidity. In order to update things, in the statement there was some recognition that “towards the end of 2009 economic activity continued to expand” while the “near-term” outlook for inflation is expected (as with our forecast) to be “around 1%”.
Also there is recognition now of the “parallel decline in money and credit growth”, though the ECB professes still not to be concerned by the deepening weakness in the broad money/credit aggregates. In the statement there was also a reference to how non-financial firms are accessing capital markets so substituting for bank borrowing (a point we have highlighted, eg in Global Economics Weekly of Dec. 11th (p 19)
And on Greece specifically:
Mr Trichet signalled that the ECB still planned to move back to its standard collateral framework at year-end, commenting, “We will not change the collateral framework for any one country”.
Later, he commented, “no government, no state can expect from us any special treatment; we have our own rules and we will apply them without special treatment of any kind”. Asked about the possibility of Greece having to leave the euro area, Mr Trichet responded, “I do not comment on absurd hypotheses”.
On how Greece might affect the euro area economy: “We have to get the dimension in our minds, Greek GDP is 2.5-3.0% of the euro area average. [As well], the order of magnitude of the consolidated deficit for the euro area as a whole is between 6.5 and 7.0% of GDP: you can also compare that with deficits on the other side of the Atlantic”.
“While this [the Greek issue] is a very big challenge, it must be placed in context”…”All that being said, country ‘x’, country ‘y’ have to ‘do the job’, in their own interest. The problem is to help oneself”.
Related links:
Greek tragedy - FT Alphaville
Greece condemned for falsifying data – FT
A secessionist recession for EU peripherals? – FT Alphaville
Moody’s downgrades Greece to A2 – FT Alphaville