While you wait for the big ECB announcement at 7:45 ET, here’s something to whet your appetite. It’s from his last Q&A on November 4, and it regards the situation in Ireland, which was already getting very worrisome.
Note his calm tone, and his lack of eagerness to say anything extremely reassuring.
Quite frankly, he’s just not that eager to offer up the ECB as a debt saviour :
Question: Two questions relating to the situation in Ireland. The first is whether you are in any way alarmed at the quite significant rise in Irish borrowing costs this week. The yield on 10-year money was approaching 7.8% this morning shortly before noon. Are you in any way alarmed, or, in your view, is that a fair reflection of the level of risk in the Irish economy?
Secondly, the government in Dublin is preparing a four-year austerity programme. It has declared that the adjustment will be in the order of €15 billion over the course of the four years. Is that figure going in the right direction? Are you encouraged by it, are you encouraged by the debate that is taking place in Ireland or is there more that you would like to see, and why?
Trichet: It is now 3 p.m. If I understand correctly, the Irish government will announce the details of the four-year programme this afternoon. I would only say at this stage that, in our view, the €15 billion figure you mention is currently sufficient. But, of course, you have to be permanently alert and ready to do whatever is needed. The ultimate goal, which, to my knowledge, has also been made public, is the 3% at the end of the period. I think that the market, as well as observers, savers and investors, will be looking at what the minister and the government say in a few hours’ time with great interest. My interpretation is that this government message, which will focus on the frontloading of the programme, is of extreme importance. At present, I have no reason to think that observers will be disappointed but, of course, I cannot say anything else. It is up to the minister to deliver the message.
Question: Mr Trichet, Mr Bini Smaghi, from the ECB, has recently elaborated on the EU governments’ proposal for a permanent mechanism, and, in his remarks posted on the ECB’s website, he says that the possibility of introducing the idea of debt restructuring opens the door to the idea of orderly debt restructuring, so more than case by case. Do you think that this is the real intention behind the EU Council proposal, especially by Germany and France?
And my second question do you share the concern of those governments that their taxpayers do not foot the bill again in the event of a new sovereign debt crisis?
Trichet: I have already responded to the second point.
On the first point, I never comment on what my colleagues are saying.
Question: Just to ask again what my colleague did about Irish bond yields. The spreads to German Bunds are now at the level that Greece was, when they had to be rescued. Does that concern you? Do you think Ireland now needs to be rescued?
And a second question on the bond programme: it has now been three weeks in which you have not bought any securities. Does that mean it is over?
Trichet: On your second question, I have already said that it is not over.
On your first question, we will all listen to what the government of Ireland announces, which will be of extreme importance. It is my expectation that something very important will be said this afternoon in a few hours from now.
Question: Two questions, Mr President. On the one hand, again I have to come back to the Ireland situation. Does this show that the mechanism of buying bonds in order to lower the spreads of the yield levels is not working? And what are the options that you have on the table? Are you discussing upgrading it significantly or scrapping it altogether?
And, second, a question with regards to money market rates: the three-month EURIBOR is actually now above the ECB benchmark rate of 1%. Aren’t you, on the other hand, discouraging interbank lending if you continue to offer banks three-month loans at 1%?
Trichet: On your first question, I would only remind you what we did with the Securities Markets Programme. We launched this programme in May in order to help restore a more normal functioning of our monetary policy transmission mechanism. And, as you know pretty well, we never targeted any particular spreads or whatever on the market. And that is absolutely obvious, because you know month after month and week after week what we are doing and you can see what happens. So, no other comment on that.
On your second point, we consider that the unlimited supply of liquidity is there. As I also explained last time, the banks are asking for all they need, because there is no limit, either on the main refinancing operations, or for the one-month window, or for the three-month window. So, because we did not change our rates (neither the MRO nor the deposit rate was changed), what we have observed in the market is that the positioning of EONIA, the very short-term rates, is dependent on the decisions of the banks themselves. It is a kind of equilibrium which depends on what the banks themselves are asking for, and you can see that it goes up and down from time to time, very much depending on the demand from the banks themselves. So, there is no particular signal there. The only important observation I would make is that it shows that we are in a normalising process, and that is an important element. But again, from our part, there was no signal at all – no monetary policy signal. This normalising has been taking place under our eyes, and we will see what happens later on. That is the observation I would make, and I have to say that, for me, a normalising is something positive. It also indicates that perhaps the EONIA means more today than it meant before, because before perhaps only a very small fraction of the institutions had access to this very low interest rate refinancing.
Question: Is this new spread divergence of Greek, Irish and Portuguese bonds a consequence of the Franco-German plan for an orderly sovereign debt restructuring, which was previously seen as politically impossible? Or is it related more to specific problems of the countries?
Trichet: I will certainly not embark on disentangling the various factors that might have played a role. You might have seen what the market literature was saying. You have a lot of different views, as always, on the market. I would only say that what we have in front of us now is, to my knowledge, not a two-country proposal but a European Council call to Mr Van Rompuy and to the European Commission. And you know the text, because it has been made public. That is where we are in terms of developments.
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