PARIS (MNI) – The recent shift in the European Central Bank’s
economic outlook is “significant,” ECB President Jean-Claude Trichet
said in an interview with a Spanish newspaper published Tuesday.

The central bank’s new view that risks to economic growth in the
Eurozone are now on the downside and that inflation risks are broadly
balanced “represents a significant change compared with the outlook of
three months ago,” Trichet told the business daily Expansion.

While some might interpret this as a sign that the ECB is now
leaning towards cutting interest rates, Trichet reaffirmed the bank’s
resolve to continue “maintaining inflation expectations firmly
anchored,” the paper reported.

Greece, which is struggling to win approval for an E8 billion
bailout loan disbursement, “must strictly apply its adjustment program
and achieve all of its objectives,” Trichet said.

Greek Finance Minister Evangelos Venizelos and other Greek
officials held a teleconference Monday evening with lead inspectors from
the European Commission, ECB and International Monetary Fund to try to
set a date to resume inspections that will determine whether Greece is
complying with the conditions set out in its bailout package and whether
it will therefore receive the E8 billion.

The conference ended inconclusively, and another one is scheduled
for tonight.

With regard to the European debt crisis more broadly, Trichet said,
“All the governments [of the 17-member Eurozone] need to implement fully
the decisions they took on July 21 in Brussels.”

Among those decisions is new authority for the European Financial
Stability Facility to purchase bonds in the secondary market, a change
in statute that the ECB has been urging for months — largely to relieve
itself of that responsibility.

Since early August, the ECB has been back in the secondary bond
markets, intervening heavily to avoid a dangerous spike in financing
costs for Italy and Spain, which have moved closer to the center of
markets’ radar screen.

Standard & Poor’s downgraded Italian sovereign debt late Monday
night. Moody’s said earlier in the week it was postponing its decision
for a month on whether to downgrade Italy.

Trichet said Spain must “give special attention to implementing new
structural reforms with resolve in order to obtain the highest possible
potential growth.”

Trichet also urged European banks to reinforce their balance sheets
and improve their ability to resist financial and economic shocks.
Speaking of the ECB’s emergency liquidity measures, he said, “It is
important for market participants and analysts to know that the ECB is
supplying unlimited liquidity in euros at [maturities of] one week, one
month and three months.”

Asked about ECB Executive Board member Juergen Stark, who announced
his resignation earlier this month, Trichet said that his colleague “has
always demonstrated extraordinary dedication to the consolidation of
European unity.”

It is widely believed that Stark decided to leave because of his
opposition to the ECB’s decision to renew its bond purchasing in August
on behalf of Italy and Spain — a move with which he strongly disagreed.
So far, Stark has said only that he decided to leave the ECB for
“personal reasons.”

But last week Stark that he would speak more openly about the
reasons for his decision after his successor — probably Germany’s
Deputy Finance Minister Jorg Asmussen — has officially replaced him.

–Paris newsroom, +331 4271 5540; bwolfson@marketnews.com

[TOPICS: M$$EC$,M$X$$$,MGX$$$,M$$CR$,M$Y$$$,M$S$$$]