World Business

ECB chief Trichet powerless to resolve crisis

By John Fraher (China Daily)
Updated: 2010-04-13 10:27

ECB chief Trichet powerless to resolve crisis

Jean-Claude Trichet, president of the European Central Bank (ECB), gestures while speaking during a news conference at the ECB headquarters in Frankfurt, Germany, on Thursday. [Agencies]

FRANKFURT - Mounting speculation that Greece will default on 304.2 billion euros ($405.2 billion) of debt is depriving European Central Bank President Jean-Claude Trichet of the stable markets needed to bring Europe out of its worst post-war recession.

Since early February when politicians began squabbling over how to rescue Greece from Europe's largest deficit as a percentage of gross domestic product, the euro has lost 4.1 percent against the dollar and the extra yield demanded by investors to hold Greek debt rather than German bunds increased as high as a record 4.43 percentage points as traders saw a greater risk of default.

Trichet, who was supposed to spend his final year in office nurturing the region's nascent recovery, finds himself powerless to resolve the crisis because he has no control over fiscal policy.

"Trichet is essentially an observer in the current crisis," said Colin Ellis, an economist at Daiwa Capital Markets Europe Ltd in London and a former Bank of England official. "He does not hold the levers of power."

Greece is highlighting the limits of Trichet's ability to maintain confidence in the euro, which is facing its biggest challenge since he helped bring it into being in 1999. Trichet, who described himself as "Mr Euro" in 2006, has no say over how taxpayers' funds should be used to rescue Greece. His push to limit the International Monetary Fund's involvement in a rescue was rebuffed by leaders last month.

Trichet, whose eight-year term ends in October next year, struggled to answer reporters' questions on Thursday about the interest rates that Greece would have to pay for emergency funds and explain his stance on the IMF's role in a bailout.

"He's one of the brightest central bankers out there, but it's getting too complex," said Silvio Peruzzo, an economist at Royal Bank of Scotland Group Plc. "He has to fit into a political world and that's what he's uncomfortable with."

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