–Adds Comments Denying Any Quid Pro Quo With Italy

FRANKFURT (MNI) – Approval of new fiscal measures by the Italian
senate this week confirms Italy’s commitment to necessary reforms, the
president of the European Central Bank said Thursday.

“The latest decisions taken by the Italian government are
confirming, which is very important for the [ECB] Governing Council, the
first commitment of the Italian government,” Jean-Claude Trichet said.

“We had confirmation that there was implementation of what had been
said. That is of extreme importance,” he added.

After weeks of flip-flopping, the government of Italian premier
Silvio Berlusconi finally agreed earlier this week to a E45.5 billion
package of deficit-cutting measures, including a wealth tax and pension
changes that had been in a package originally floated last month, before
being taken out — to the consternation of Trichet, financial markets
and many of Rome’s Eurozone partners.

In addition, Italy announced Thursday that it would put a balanced
budget “principle” in its constitution, though it gave no specific
deficit targets or timeframe.

Last month, with Italian sovereign debt under pressure in markets,
Trichet took the unusual step of strongly urging the government in Rome
to take more concrete fiscal steps. Soon after the government announced
a new plan, the ECB started buying Italian sovereign debt in the
secondary market to suppress yields and keep Italian borrowing levels
from soaring.

Many suspected the ECB had actually given Italy a kind of quid pro
quo, demanding stronger deficit-cutting measures in exchange for an ECB
agreement to buy Italian bonds.

Trichet strongly denied today that his approaches to Italy had
involved anything of the sort.

“Very simply, we are not negotiating with any government,” Trichet
said. “We sent messages to tell [Italy] that the goal of restoring
cecdibilty and creditworthiness was calling for a number of
orientations. It was not a negotiation.”

He added: “We were not dictating; we were analyzing the situation
to see what would be necessary to restore the creditworthiness” of
Italy.

Trichet’s evident satisfaction today with Italy’s most recent
actions could well lead to continued ECB purchases of Italian bonds, as
needed.

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