Trichet: Governments must prevent Greek default
FRANKFURT, July 19 | Mon Jul 18, 2011 11:00pm BST
FRANKFURT, July 19 (Reuters) - Euro zone governments have to come up with a plan to prevent Greece from defaulting, as that could not be a desirable solution to the debt crisis, European Central Bank President Jean-Claude Trichet was quoted as saying on Tuesday.
Trichet also said that a failure of the United States to solve the impasse around raising its debt ceiling would "create a problem of great magnitude for the entire world," but said he was confident the United States would deal with the issue.
Trichet spoke bluntly about the need to prevent a Greek debt default.
"On behalf of the Governing Council of the ECB, I said that a credit event, selective default or default should be avoided," Trichet said in an interview with Estonian newspaper Postimees, Slovakian Hospodarsky Novine and Slovenian Delo.
Those who advocated sovereign default as a desirable way out of the crisis had not thought the matter through, he said.
"Who would consider the default of any sovereign issuer -- in the context of a European and global crisis of public finances in the advanced economies -- a 'good solution'?" Trichet said.
He said euro zone governments have to find a way to avoid Greek defaulting on its debt, even as analysts see default was seen more and more likely.
Asked why the ECB was unable to stop the sovereign debt crisis, Trichet said it was for governments to solve, not the central bank, and said governments should act fast.
"This is being discussed by governments; we encourage them to find appropriate solutions as soon as possible," Trichet said.
But on the first hand, governments are responsible for their own finances, he said.
"The tensions and problems are due to the absence of sound, rigorous and correct management by the countries themselves: they have the primary responsibility," he said, adding that other countries must use surveillance to keep anyone from straying from sound policies.
Greece, which has launched an austerity plan, is hoping for a second European bailout package of about 110 billion euros to keep it financed until the end of 2014, when it is supposed to return to financial markets.
Asked if he thought that such countries as Italy might need a bailout package, Trichet said those countries could manage on their own.
"I am fully confident in their capacity to reinforce their credibility," Trichet told the newspapers in an interview conducted on July 13.
He also said he did not expect the debt crisis to cause a recession in the euro zone, and that the Governing Council sees growth risks as balanced.
Trichet dismissed the possibility of the 17-country euro bloc losing members, saying he could not envisage such a situation.
Asked about his proposal last month to found a euro zone finance ministry, he said he would not propose a timeline when this would happen, just saying it could happen sometime in the future.
Trichet also brushed off suggestions the ECB should keep its interest rates low to accommodate the debt-ridden countries.
"Solid anchoring of inflation expectations and the credibility of the ECB to deliver price stability in the medium term is positive for all countries in the euro area, including those that have adjustments to implement," he told the newspapers.
The ECB is the only major central bank to have lifted rates since the intensification of the financial crisis. Due to increased inflationary pressures, it raised rates in April and again in July; they now stand at 1.5 percent.
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