PARIS (MNI) – In a press conference virtually devoid of significant
comments on monetary policy or the Eurozone economy, ECB President
Jean-Claude Trichet struggled to explain perceived inconsistencies in
the bank’s positions on Greece, the IMF and rules governing collateral
eligibility.

That was the view many analysts took away from today’s appearance
by the ECB president: a difficult, uneven performance in which he sought
to defend the ECB’s reputation for consistency.

Analysts largely concurred that, given the ECB’s obvious concern
about events in Greece, a sluggish economy, and the absence of any
significant inflation worries, interest rates are probably on hold until
well into 2011.

Below are excerpts of analysts’ comments:

MARCO ANNUNZIATA, UniCredit Group: Trichet today was almost put on
trial for the way in which the ECB appears to have reversed its position
on its collateral policy and on the IMF. What is most worrying, however,
is that todays press conference at times brought further ambiguity,
with Trichet at one point arguing that lending to Greece without a
subsidy element could mean simply at rates no lower than those at which
creditor countries can finance themselves. He then retreated wisely
behind the argument that the decision rests with the governments, but
was unable to clarify how a rescue package would be triggered, and at
what rates Greece could be financed, while reiterating that he thought
the plan outlined by EU leaders was workable hardly a ringing
endorsement. I think we can draw two conclusions from todays press
conference. First, that market tensions on Greece debt are likely to
intensify in the short term, quickly pushing us closer to an IMF
program. Second, that the ECB should take a step back and try to
distance itself from issues that have unfortunately become largely
political, like potential rescue packages for member countries its
communication has suffered enormously in these last few months, and it
risks inflicting further damage to its credibility.

SILVIO PERUZZO, Royal Bank of Scotland: The press conference was
pretty much as expected. To me Trichet looked today like he was in a
bind. The key players are now the heads of state and government. He was
obviously uncomfortable with some of the questions because clearly the
ECB was partly sidelined in the discussion. And regardless of what was
said today, they are clearly not extremely happy with the involvement of
the IMF. On collateral policy, we don’t have the full details yet but it
is apparent that there is no sea change in the way they run collateral
policy. The last interesting observation was the use of the word
‘moderate’ to describe inflation rather than ‘subdued.’ They probably
realized that inflation would be higher than they had expected.

TOM VOSA, National Australia Bank: Trichet claimed that he had been
misquoted by wire services when they stated that he saw no role for the
IMF. He stated that the IMFs expertise was always important, but that
the IMF needed to be used in conjunction with eurozone countries, not
simply on its own. On a day in which Greek CDS spreads reached new
record highs, this was probably as much as Trichet could say. There was
an attempt to shore up confidence by describing the Eurozone heads of
state statement as workable and that default is not an issue for
Greece. In a testy session, Trichet was also clearly uncomfortable with
the idea that the easing of collateral requirements was somehow aimed at
Greece…Mr Trichet was bombarded with questions on the matter and the
ambiguities and uncertainties over March’s ‘rescue plan’ for Greece were
uncomfortably evident.

COLIN ELLIS, Daiwa Capital Markets Europe: Fundamentally, the ECB
is essentially an observer in the current (Greek) crisis – it can offer
opinions to governments, and tweak its collateral rules, but it does not
hold the levers of power. As such, Trichet’s attempt to reassure markets
today is likely to do little to reverse the massive sell-off in Greek
paper in recent weeks. Instead, the best the ECB can do is keep policy
firmly in accommodative mode – which it was probably going to do anyway
– and hope that European leaders stand by their promise never to abandon
Greece.

HOWARD ARCHER, Global Insight: The ECB’s statement reinforces our
belief that the bank will keep interest rates down at 1.00% through 2010
before starting to raise them gradually in the first quarter of 2011. We
also expect the ECB to continue to tread very lightly over the coming
months in withdrawing its emergency liquidity measures. Indeed, the
Greek crisis is clearly complicating the ECB’s plans, and will likely
continue to do so.

JENNIFER MCKEOWN, Capital Economics: After the ECBs decision to
leave interest rates on hold, Thursdays press conference unsurprisingly
focused on Greece. President Trichet attempted to reassure markets by
stating that the activation of a rescue package was in the Greek
Governments hands and that it would simply need to request aid.
Meanwhile, he stated that the current rescue framework was workable
despite his earlier apparent objections to IMF involvement and that
default was not an issue. Admittedly, the President confirmed that
lower rated assets would be subject to larger haircuts if used as
collateral for central bank loans from next year. This could affect
Greek banks in particular, given their dependence on ECB loans.
Otherwise, though, he stressed that unconventional policy support would
be removed only gradually. Whats more, he struck a dovish tone
regarding the wider euro-zone economy, stating that the recovery would
be uneven, with investment held back by large amounts of spare
capacity and consumer spending restricted by a weak labour market. As
aggressive fiscal tightening is clearly set to hit domestic spending
too, it will be quite some time before inflationary pressures emerge.
Accordingly, we still see official interest rates on hold until the end
of next year much longer than markets currently envisage.

NICK KOUNIS, Fortis Bank: The ECB president is trying to calm
market worries about Greece’s fiscal situation and the effectiveness of
a rescue plan by saying that default is not an issue, that he has no
reason to think that the austerity plan is not being implemented
rigorously, and that the statement of heads of government is ‘workable,’
which is not what markets necessarily believe. The other issue are the
changes to the collateral framework, which appear to be on balance
positive for Greece. And finally, there were no big changes in terms of
the assessment of growth and inflation…I don’t think the collateral
changes mean much at all for government bonds. There was an initial
market reaction when Trichet made his announcement a couple of weeks
ago. The new haircut schedule is not for central government instruments,
as near as can be told, so that Greece will not face a new haircut
schedule.

INVESTEC, David Page: The press conference confirmed no change in
view in the Governing Councils outlook for economic activity or
inflation. The press conference was again dominated by Greece, but much
of this veered beyond the ECBs remit much to the exasperation of
Trichet. Trichet responded to a question stating that Default is not an
issue for Greece, the exceptionally strained Greek 10-year bond spread
over Bunds appeared to narrow a touch on this assertion. We wonder what
else Trichet could have been expected to say? The ECB President went on
to say that he thought the ECB support package was a workable
framework and that markets should take the commitment from the Heads of
State very seriously.

JOERG KRAMER, Commerzbank: Following its regular meeting, the
European Central Bank (ECB) announced today that after the end of this
year it will still accept bonds of low credit quality as collateral for
its operations. This means it would accept Greek government bonds even
if the agencies continued to downgrade Greeces credit rating. This was
obviously a reaction to the Greek crisis…ECB President Trichet did
emphasize that the changed collateral policy applies to all Eurozone
countries. But the ECB obviously wants to ensure with its new
regulations that it could accept government bonds from EMU member Greece
as collateral after the end of this year even if the rating agencies
downgraded the countrys credit rating once more. The crisis in the
periphery will probably influence not only the ECBs collateral policy
but also its general interest rate policy. The central bank will
discontinue its non-standard monetary policy measures only step by step
and we expect it will leave the key rate at only 1.0% until spring of
next year.

–Paris newsroom, +331-42-71-55-40; paris@marketnews.com

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