–Adds Comments On ‘Two-Speed’ Eurozone

LONDON (MNI) – The European Central Bank’s decision to continue
with full-allotment for its refinancing operations through year-end is
compatible with its stated aim of withdrawing extraordinary liquidity
measures, President Jean-Claude Trichet said Thursday.

At the ECB’s monthly press conference, Trichet said money markets
were on their way to functioning normally and denied that the rates
attached to the three-month monetary operations were intended to send
any signal on the path of interest rates.

The money market “is on its way to a more normal functioning, but
it is a process that takes time,” Trichet said.

The aim of full allotment was to “ensure appropriate supply of
liquidity,” he said. “We are withdrawing previous non-standard
measures.”

The ECB head stuck to his mantra: “We consider present interest
rates as appropriate.” He stressed that there was “no intention to
signal any intention on interest rates in the future.”

“We will continue to follow very carefully what happens in the
money markets, which in our eyes is making its way to more normal
functioning. But it is, of course a process that will take some time,”
Trichet said.

Asked whether he remained confident that the Eurozone would avoid a
double-dip recession, Trichet expressed cautious optimism it would.

“Since we have started to observe the pick-up of growth, we never
declared victory. We said, ‘Let’s remain cautious and prudent’. The last
quarter has been exceptionally good. We had a succession of positive
surprises. But we do not declare victory. We are still in an uncertain
universe. We have to remain cautious,” he said.

“Double dip was not on the cards in our analysis,” he added. “And I
am even more inclined” to say this.

Trichet warned against excess pessimism over the recent weak US
economic data.

“As regards the USA … perhaps one has to be careful not to
follow a mood which is a little too cyclical,” he said. “What we see is
more or less what we had in mind and we are not too disappointed. We
were not surprised to see growth which was not extraordinarily dynamic.”

The ECB head was also questioned over how concerned he was about
the Eurozone turning into a “two-speed” economic block, with Germany and
its satellites performing strongly and peripheral countries stagnating.

Trichet said the Eurozone resembled the US, with the ECB
responsible for a block of 16 countries with more than 350 million
inhabitants.

“We are very close to the USA in this respect, which has to issue a
currency for a very vast number of states. So I was anxious to highlight
the diversity we are seeing on both continents. When we look at average
growth in the USA between 1997 and 2007, the slowest growth (for
individual states is 0.9% and the most rapid is 4.7% [for] … Ohio and
Arizona,” Trichet said.

“In the EU over an equivalent period of time the equivalent would
be in the order of Ohio and Arizona. We are not in a different
universe,” he added.

–London newsroom: 4420 7862 7491 e:mail drobinson@marketnews.com

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