BRUSSELS (MNI) – Imposing ‘haircuts’ on bondholders would send the
wrong message to the markets, European Central Bank Governor
Jean-Claude Trichet said at a meeting here of the European Parliament’s
Committee on Economic and Monetary Affairs.

At the same hearing, Trichet also told Greece and Ireland to ‘apply
the programme’ and stressed that such ‘haircuts’ are not part of the
adjustment programmes presently being implemented by Greece and
Ireland.

“The message is very simple: apply the programme,” he said, adding
that the programme “does not comprehend the concept you have mentioned.”

“Modern markets are made of investors that are long and investors
that are short. The investors that are long – private sector investors –
are losing money when you practise this haircut you have mentioned.
Those investors that are short are making it. This is also something
that one must have in mind when reflecting on this very important
issue.”

On haircuts in general, Trichet said that the recovery plans had be
implemented in the best fashion possible and that it is “very, very
important, in my opinion, not to confuse things. ”

Trichet also told deputies that the central bank was following
trends in M3 aggregates “particularly closely” and noted that it was
growing less than GDP.

Asked by a member of the committee whether the central bank would
raise interest rates if inflation was confirmed in the real economy, he
said.

Trichet also insisted that the roles of ECB president and head
of the European Systemic Risk Board had to be kept “strictly separate”
as they did not “mingle at all”.

Asked whether there was a European solution to the existence of
systemically important financial institutions which are too big to fail,
he replied: “This is not an issue were the US can give a response alone
or where we the Europeans can give a response alone.”

“We have to get more or less the same rules. It is not easy.”

Trichet noted that private sector indebtedness in Europe and
deleveraging was a less serious issue than in the United States and that
even though there was an increase in debt – “in the private sector, it
is stabilisation we are seeing”.

Trichet was also quizzed about the planned buybacks of troubled
member states’ bonds. Asked what the role of the board would be in
this, he said the stability of the euro area was an important risk for
the EU as a whole and that such risk “can come from a group of
countries, it can come from one country”.

“This is certainly one issue that we will have to look at,” he
said.

–London newsroom: 0044-207-634-1624: email: ukeditorial@marketnews.com

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