BRUSSELS (MNI) – European efforts to bolster the single currency
zone’s bailout fund are in line with the European Central Bank’s wishes
for an increase in lending capacity, but not with the ECB’s desire that
the mandate of the fund also be broadened, the bank’s President
Jean-Claude Trichet said Monday.

When asked about efforts to shape both the future European
Stability Mechanism and the current European Financial Stability
Facility, Trichet reiterated that the Governing Council’s position is
that both should be improved in terms of “quantity” and “quality.”

“As regards the quantity I have to say that what has been decided
upon…seems to us to be commensurate to what we had in mind, both for
the stabilization fund today and for the future fund,” he declared.

The decision to bolster the EFSF’s effective lending capacity to
E440 billion, and that of its successor, the ESM, to E500 billion,
“seems to us to be in line with what is credible, and I won’t hesitate
to say that,” he said.

On the other hand, “as regards the flexibility, there are…other
elements of flexibility that you mentioned — in particular the [refusal
of political leaders to allow] intervention on the secondary market —
that are…not in line with what we had recommended,” he said.

The ECB lobbied long and hard for the EFSF and ESM to be given the
authority to buy sovereign debt in the secondary market. The EBC
currently does so, thus providing an much-needed safety valve when
peripheral debt comes under pressure. However, the central bank’s
balance sheet is loaded with high-risk assets now, and the program is
increasingly controversial within the Governing Council.

Asked about the publishing of banks’ sovereign debt holdings in
upcoming stress tests, Trichet was careful to say that he could not
speak for the European Banking Authority, which is administering the
test, but he said it was his “understanding” that the EBA might intend
to do what they did last year and make public banks’ outstanding
securities so that observers can make judgments for themselves.

Trichet said that a financial transaction tax would only be a good
idea if it were global. “Otherwise there would be a difference between
the way transactions are carried out between Europe and the rest of the
world.”

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