FRANKFURT (MNI) – The European Central Bank will ensure that its
non-standard measures “are commensurate the difficulty that the monetary
policy transmission encounters in times where we have the impact of the
crisis,” ECB President Jean-Claude Trichet said Monday.

Speaking at the Frankfurt club of international economic
journalists, Trichet confirmed that the central bank is looking at ways
to deal with banks still addicted to central bank liquidity, even as
overall money markets conditions have improved significantly.

“Our interest rates are there to permit us to deliver price
stability and to be credible in delivering price stability. And we are
always adjusting our interest rates with this in mind,” Trichet said.

“Then we have the non-standard measures to permit us in times of
turbulence, in times of destruction of markets, in times of absence of
normal functioning of markets … to help restore a more normal
functioning of the monetary policy transmission mechanism,” he added.

Trichet also reiterated that interest rates and non-standard
support measures are independent of each other and can be unwound at
different speeds.

“We consider the two tools that we are utilizing the standard
measures and the interest rates, and the non-standard measures as
being variably independent. We could go up and down with one tool and
leave the other unchanged and do the same with the other tool,” he said.

Asked whether the ECB had made any progress in drawing up solutions
for banks still addicted to central bank liquidity for funding, even as
overall money markets conditions improved significantly, Trichet said:

“We are in a situation where we are looking at all elements that
would permit us to be back to a normal situation, which calls for our
own non-standard measures to be progressively phased out and which call
also for the market to function as well as possible, which calls for
banks to have a normal attitude and normal interface with us,” the ECB
president said.

Last week, ECB Governing council member Mario Draghi had said that
“dealing with addicted banks is an essential component of any exit
strategy” and that “concrete proposals” to deal with this problem were
currently being discussed at the central bank.

As for monetary policy, Trichet said that the “ECB has demonstrated
a strong ability to preserve price stability” and expectations are that
it “will deliver price stability over the next ten years.” Similarly, he
assured that “the euro is credible, the euro is credible for the next
ten years.”

While acknowledging the strong challenges the Eurozone is facing,
Trichet asserted that current troubles are associated with ‘E’ in the
EMU, namely the economic functions.

“They have essentially three origins: unsound fiscal policies in a
number of member states, inappropriate macroeconomic and supervisory
policies in a number of member states, and overall inadequate system of
surveillance. This is the triangle that lies behind the current
situation. And let me make this very clear: the triangle does not
include monetary policy,” he said.

— Frankfurt bureau: +49 69 720 142; email: frankfurt@marketnews.com —

[TOPICS: M$$EC$,M$X$$$,MT$$$$,MGX$$$$,M$$CR$]