LUXEMBOURG (MNI) – The European Central Bank is in a mode of strong
vigilance, Governing Council member Yves Mersch confirmed Thursday.

Speaking to reporters following the presentation of the Annual
Report of the Luxembourg Central Bank, which he heads, Mersch dismissed
the idea that slower economic growth should make the ECB rethink its
policy-tightening stance.

“We have just had the latest figure concerning [Eurozone GDP growth
in] the last quarter, which was 0.8% and which was an exceptionally high
figure,” he said, “so we also have today published our figures
concerning the medium-term evolution of growth and inflation, and
according to these figures we have stated what I would call the ECB’s
‘SPV’, which means ‘strong posture of vigilance’.”

ECB President Jean-Claude Trichet uttered the code words “strong
vigilance” at his monthly press conference, thus signalling an almost
certain rate hike at the next meeting in July.

Mersch, asked whether monetary authorities would likely raise
borrowing costs beyond the point at which it is clear the business cycle
has reversed, merely replied, “you can expect the ECB to be faithful to
its mandate and to ensure the people of Europe that we will deliver
price stability in the medium term, as it is foreseen in the Treaty.”

Mersch agreed that “there are reflections concerning private sector
involvement” in a possible rollover of Greek debt, but “my understanding
is that the central bank is not a private sector institution,” he said,
so that at the ECB “we have in this respect nothing to communicate.”

Similarly, he said with regard to whether private bondholders
should be asked to be involved, “we are not part of these discussions.
We have made clear what is our decision concerning our policy framework
and concerning the collateral. We rule out anything that would not be
voluntary and which would be considered to be a default, either a
selective default or which would be considered as a credit event.”

He declined to add anything to the “absolutely clear” position
enunciated by ECB President Jean-Claude Trichet concerning the German
finance minister’s proposal to extend the term of Greek debt by 7 years,
noting that the Governing Council “is unanimous in this respect.”

–Frankfurt bureau tel.: +49-69-720142. Email: dbarwick@marketnews.com

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