Trichet: There Was No Deal W/Italy On Bond Purchases: Press

Author: Market News International | Category: News

Paris (MNI) – The European Central Bank’s decision to begin buying
Italian government bonds in the secondary market was spurred by a
weakening of investor confidence in Italy and was not part of any deal
with the Italian government, ECB President Jean-Claude Trichet said
Friday.

In an interview with the Italian daily Il Sole 24 Ore, Trichet said
market turmoil at the beginning of August “required a message to be sent
to the Italian government.” He added: “There was no negotiation.”

The ECB sent a message urging the Italian government to undertake
additional budget cutting measures.

The Italian government responded promptly to the ECB’s message on
Aug. 5, pledging further spending cuts and promising to reduce its
budget deficit entirely by 2013.

The central bank has since been a frequent buyer of Italian,
Spanish and other Eurozone bonds, with purchases of nearly E43 billion
over the past month.

“We sent our message based upon our analysis of the reasons for the
market disruption,” Trichet said. “We analyzed the decision taken by the
government. Our decision to activate our Securities Markets Program is
designed to help restore a better transmission of our monetary policy.”

Since the ECB move, yields on 10-year Italian government bonds have
fallen from around 6.25% to around 5.10%.

In the interview, Trichet rejected the suggestion that the bond
purchases have may have compromised the ECB’s independence.

He said the current crisis has been the “the worst since the Second
World War. And in these exceptionally demanding circumstances we had to
take non-standard measures for monetary policy reasons.” He added that
despite the bond purchases, the ECB has expanded its balance sheet much
more modestly than either the Federal Reserve or the Bank of England.

“Everybody knows as well that we are fiercely independent,” Trichet
added.

The ECB president also reiterated his view that the debt crisis in
Europe has been caused by the loose fiscal policies of individual
nations and that only euro-area governments can correct those policies.
He distanced the ECB from the idea that the crisis could be fixed with a
global solution like the issuance of Eurobonds.

Instead he called on European governments to rapidly implement the
decisions taken by EU leaders at the July 21 Brussels summit.

The euro area has had “a very serious weakness in terms of economic
and fiscal governance inside the euro area which has been revealed by
the global crisis,” Trichet said. “The weaknesses have to be corrected.”

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

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