FRANKFURT (MNI) – Eurozone banking stress tests should help improve
investor confidence amid encouraging signs from the real economy,
European Central Bank President Jean-Claude Trichet said Friday.

“Publication of detailed results of a harmonized pan-European
stress tests is an important step in the right direction. These tests
will increase transparency and enhance investors’ confidence in Europe’s
banking sector,” Trichet said in remarks at the ECB Watchers’
Conference.

“They will also contribute to restoring the important
intermediation role of the interbank market in channeling funds within
Europe,” the president asserted.

“I think that it is good that the authorities in Europe … have
decided to engage in not only macro stress testing, but also in
publication of individual results for the stress tests,” Trichet said
during the subsequent question-and-answer session.

Trichet expressed confidence that national authorities are carrying
out the tests designed in liaison with the ECB and the EU Commission
“very, very carefully.”

“If it appears in some cases that there is a need for additional
capital … it will be done … the idea is certainly that appropriate
action would follow where and when it is needed,” Trichet said. While
there are a number of alternative means of providing needed capital,
where necessary public authorities should step in, Trichet said.

Reiterating comments made in Thursday’s monthly press conference,
Trichet observed with respect to secondary markets that “progressively,
week after week … we see a situation which is going in the right
direction. Again, I’m very cautious, very prudent.”

“The decisions that have been taken are so different from what had
been anticipated” given historic doubts about Europe’s ability to act,
Trichet said, that he is “not surprised” that these decisions “are
progressively incorporated by investors, savers, market participants,
and that might explain why things are going progressively better.”

On Thursday, Trichet suggested that given improving market
conditions, the ECB’s government bond purchases may be slowing in the
weeks ahead.

He that “the latest signs that we are receiving from the real
economy are encouraging. Exports are recovering at a steady pace.
Industrial production is rising and employment is stabilizing.”

He added that recent data suggest sounder GDP growth in the
Eurozone in the second quarter as compared to the first.

“But as I have said, the crisis is not over yet. For the ECB’s role
as the guardian of the euro, this means, first of all, to remain
faithful to its primary mandate of delivering price stability in the
medium term,” Trichet asserted.

European and global policy makers now “need to ensure economic
recovery and renewed confidence, while reducing fiscal deficits and
remaking financial system into one that supports the real economy,”
Trichet said.

“Sound public financing and a more resilient banking sector will
strengthen the fundamentals of the European economy,” he said, adding
that Eurozone governments are firmly committed to press ahead with
necessary consolidation.

Trichet said that the European authorities must further work to
improve the Eurozone’s economic governance. He welcomed recent work by
the van Rompuy Task Force, calling for greater surveillance and sanction
possibilities and improving competitiveness.

He also said another reform needed is a “crisis management
framework.”

“This framework has to respect strict conditionality and minimize
moral hazard. It is an issue that has not yet been addressed in the task
force itself,” Trichet said.

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