–EU Rehn: Once We Agree Greece Complying, Can Disburse Aid Tranche

PARIS (MNI) – The enhanced European Financial Stability Facility
will ultimately mean the European Central Bank can discontinue its
efforts at ensuring a properly functioning monetary policy transmission
mechanism, ECB President Jean-Claude Trichet said Saturday.

Speaking to the press after the meetings of the Group of 20 central
bankers and finance ministers, Trichet emphasized that “as all other
non-standard measures,” the ECB’s sovereign bond purchases in the
framework of its Securities Market Program (SMP) “are designed to be
commensurate with” the functioning or lack thereof of markets and to
help restore the transmission mechanism.

“The SMP decision has been taken by the Governing Council of the
ECB with the understanding that the 27 heads [of state and government in
the EU] had decided [at the summit] on the 21st of July to have an EFSF
which would be able to intervene on the secondary market in order to
help restore financial stability,” he said.

“The working assumption is that when the EFSF is up and running and
able to intervene in the secondary market, we take it that it will
ensure better financial stability and that it will permit us not to help
restore a better transmission of our monetary policy,” he said.

Trichet failed to specify whether the EFSF and SMP might operate
simultaneously for a period.

Trichet avoided breaking any news today, informing his listeners
that he had reminded G-20 partners here of the ECB’s decisions earlier
this month to stick to its full-allotment, fixed-rate liquidity
provision regime until at least the end of 1Q next year; to introduce
12- and 13-month tenders; and to reactivate its covered bond purchase
program.

All this, he said, was “to address what we saw as tensions” on
financial markets, “to be commensurate to these tensions and to help
restore the monetary policy transmission mechanism.”

It is “very important news that all democracies in Europe are
confirming the EFSF with its new capacities, including its new
flexibility,” he said.

The Governing Council, he reported, is “extremely keen on asking
all the signatories of the accord of the 21st of July to deliver fully.”

All the decisions taken at the time are “very, very important,” he
said.

EU Economic and Monetary Affairs Commissioner Ollie Rehn, also at
the press conference, called the G-20 meeting “a very important stepping
stone towards the Cannes summit” of G-20 leaders in November.

The communique, he asserted, “rightly underlines the urgency and
the need for decisive action to overcome the sovereign debt crisis and
restore confidence.”

The reform in the EU of economic governance welcomed in the
communique “is a very important reform which will reinforce our
governance in the field of fiscal policy as well as addressing
macroeconomic imbalances and thus helps us prevent future crises,” he
affirmed.

The “comprehensive plan” presented here by Europeans and meant to
serve as “a roadmap to stability and growth” to bring an end to the
“vicious circle of uncertainty over sovereign debt, over banking sector
fragilities and over growth prospects” got a “warm welcome” from global
partners, he said.

“We certainly need a sustainable solution to the problems of
Greece,” Rehn said. This “implies that once [authorities] have concluded
that Greece has met the necessary conditions, we can disburse the sixth
tranche, and then as well we will work out a second program with
adequate financing from the public and private sector.”

He elaborated: “When I say sustainable it implies that we need to
have a solution that is lasting and durable, that will facilitate the
recovery in Greece and the service of the Greek debt burden. We will
certainly work on the basis of the agreement of the 21st of July, and we
will likely do some technical revisions due to the change in market
circumstances.”

“This is now a work in progress,”he said, adding that “we are not
reopening the deal, we are rather revising the deal.”

Details can not be offered at this point, he said. The compliance
report would be presented in time for the summit on October 23 to make
the necessary decisions.

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

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