BRUSSELS (MNI) – There is a slight improvement in the functioning
of the secondary market for government bonds, but the European Central
Bank remains cautious, ECB President Jean-Claude Trichet said on

Trichet attributed the observed improvement to the fact that
governments were taking hard measures to put their fiscal affairs in
order and markets were taking notice of the new policies.

“We are observing the situation very carefully. It is not untrue to
observe that there is a tendency for the secondary market to function
perhaps a little bit better, but I think it is too early to draw a
definitive conclusion,” Trichet said.

As a result of the improvement, the need for the ECB to buy
government bonds — as it has been doing since May 10 — “is
progressively diminishing,” Trichet said, noting that the central bank’s
purchases of sovereign debt had dropped to E4 billion in each of the
past two weeks from E16.5 billion when the program started.

“It is something that looks like a trend, but we remain alert,”
Trichet said. “We are not surprised that the market is a little bit
better, because as I said before [the new fiscal policies of EMU
governments] are being progressively incorporated” by markets.

He added: “What is clear is that for reasons that are
complex…it seems that [with] all of the positive decisions that have
been taken, all of the countries concerned have changed their fiscal
policies in terms of what existed some months, weeks ago.”

With markets pressuring the euro because of concerns about the debt
and deficit levels in some EMU countries, the Eurozone and the
International Monetary Fund offered Greece E110 billion in loans and set
up a separate E750 billion emergency facility as a last resort for other
members of the single currency bloc.

At its meeting Thursday, the ECB left its key refinancing rate
unchanged at 1.0%, where it has been since a 25-point cut that was
decided at the Council’s May 7, 2009 meeting.

The ECB left the deposit rate — which is the floor for euro money
market rates — at 0.25%, and the marginal lending rate — which is the
ceiling — at 1.75%.

The next policy-making Governing Council meeting is scheduled for
August 5.

–Brussels: 0032 487 (0) 32 803 665,

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