–Adds comments on Greece, Most Recent M3 and Credit Data

LUXEMBOURG (MNI) – The ECB is currently in the process of reviewing
its collateral rules in light of financial market developments and the
influence a handful of rating agencies could have on EMU member states’
access to central bank credit, Governing Council member Yves Mersch said
Thursday.

“The risk management of the collateral framework has to be examined
in view of developments in financial markets,” the governor of the
central bank of Luxembourg said after presenting the bank’s annual
report.

The ECB has already taken action concerning securitization, ABS and
haircuts, Mersch reminded. “We are in an ongoing process of assessing
our collateral framework and one should distinguish the phasing-out of
some unconventional measures with the re-evaluation of the existing
collateral framework.”

“There are other elements of our collateral framework that will
have to be revised in order to avoid certain unwelcome developments
which might be given in the framework which is exclusively dependent on
rating agencies,” he said.

Mersch’s remarks come after ECB President Jean-Claude Trichet
announced earlier Thursday that the bank would extend into next year its
more lenient crisis-induced collateral rules under which the minimum
rating for a security to be eligible as collateral is BBB-, compared to
A- before the crisis.

Trichet also said the central bank would introduce “graded”
haircuts on collateral to take account of the ones with poorer ratings.

Mersch, queried on negotiations among EU leaders over financial
support for Greece, stuck closely to the ECB line: “We have made it
perfectly clear that we consider the steps taken by Greece to be
courageous and our assumption was that they would convince markets that
Greece is on the right path. This continues to be our base assumption.”

The central banker put a positive spin on the Eurozone lending data
for February released earlier in the day by the ECB. Except for loans to
governments and for consumption, “all types of credit showed an
increase,” he said.

While annual growth remained negative for most categories, it was
less negative than in January, he pointed out, calling the development
“positive” and not a “deterioration” or a “march into credit-crunch
territory.”

It shows the “very slow and gradual recovery of the monetary
aggregates” which is linked to and supports the gradual recovery in the
real economy, he said.

By contrast, Mersch warned against reading too much into the latest
PMI polls, which painted a much brighter picture of Eurozone economic
trends that the base scenario of the ECB.

Highlighting the often “conflicting signals and information” from
surveys and hard data, he stressed that monetary policy cannot react to
a single set of short-term indicators but must be founded on a “broader
array” of data.

–Paris newsroom, +331-42-71-55-40; stephen@marketnews.com

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