–Adds Quotes on ‘Urgency’ of Situation, Portugal, ECB Capital Hike

PARIS (MNI) – European Central Bank President Jean-Claude Trichet
on Thursday reiterated that the ECB supports greater funding and a
broader mandate for the Eurozone’s rescue fund, the European Financial
Stability Facility.

Trichet was asked at his monthly press conference what he thought
of recent suggestions by some European officials that the lending
capacity of the facility be increased and that it be given broader
powers, including the possibility of purchasing government bonds — a
move that would take pressure off the ECB.

“We are shipping to the [Eurozone] executive branches collectively
the message that this stabilization fund should be improved
quantitatively and qualitatively,” Trichet replied. He later added, “Our
message is: improvement in quantity and quality, particularly in terms
of the flexibility of the intervention of this fund.”

Asked whether making such changes was “urgent,” Trichet said that
under current conditions it was. “Everything is urgent in the present
circumstances, of course,” he said. “And we are asking [European]
authorities in general … to be up to their responsibilities.”

“Yes, there is in the situation that we have a sense of direction
and a sense of urgency,” he stressed.

His comments seem to imply that there is some substance to recent
reports that European officials are working behind the scenes to craft a
series of new, aggressive measures to confront the Eurozone sovereign
debt crisis — including strengthening the EFSF.

Trichet, as he has done for months now, put the burden squarely on
Eurozone governments to implement the right policies. “We are observing
very closely what happens. We consider that what is decisive is the
credibility of the executive branches in all domains,” including fiscal
and economic policies as well as structural reforms, he said.

Governments must “be up to their responsibilities,” he repeated on
several occasions.

With regard to the ECB’s government bond-purchasing program,
Trichet repeated what he said in December’s press conference, namely
that “it is an ongoing program” and “you will see what we have done in
time, according to our own data.”

He said the notion that the ECB could become insolvent by taking
too many bad assets (i.e. peripheral bonds) on its books was “absurd.”
In this regard, he stressed that the ECB’s recent capital increase from
E5.76 billion to E10.76 billion had been envisioned for ten years but
not deemed necessary until recently. He noted the ECB’s policy of
setting aside sufficient reserves to cover risks stemming from
volatility in foreign exchange markets and interest rates. “This is good
management, sound management,” he said.

Trichet also said the ECB continues to mull possible solutions to
the problem of banks that are dependent on ECB funding.

“On persistent bidders, it is an issue we are examining on an
ongoing basis,” he said. “It is a complex issue.” For banks that have
fallen into the habit of relying on ECB money, “we continue to do all we
can to discourage such attitudes,” the ECB chief said.

He noted that in some countries, the banking sector “has particular
problems because of the problems of the sovereign.”

The problem of ECB-addicted banks is particularly acute in the
peripheral countries — especially Ireland, Greece and Portugal and, to
a declining degree, Spain. The Bank of Portugal said Wednesday that
Portuguese banks took E40.9 billion worth of liquidity from the ECB in
December, up from E37.9 billion in November and the first increase
since last August.

Trichet dodged a question about whether Portugal would be the next
Eurozone country forced to seek aid from the European Union and the
International Monetary Fund.

“It’s not for me to judge what the markets think or don’t think,”
he said. “That can change every hour or every day or every half day. So
I never comment on this.”

He added: “It’s a long, long battle to ask the responsible
authorities in EMU to be up to their responsibilities, because it is
essential. It is true for Portugal as it is for everyone else.”

Trichet also took a moment to reiterate comments from last month
that the aid package for Ireland “contained the necessary elements to
bring about stabilization of the Irish economy.”

–Paris Newsroom, +331-42-71-55-40; bwolfson@marketnews.com

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