Trichet defends ECB bid to calm the euro turmoil
The head of the European Central Bank, Jean-Claude Trichet, yesterday defended his institution's decision to intervene in the bond markets to try to keep the cost of borrowing down for Italy and Spain.
"It is the worst crisis since World War II and it could have been the worst crisis since World War I if leaders hadn't taken the important decisions," he said in an interview with French radio station Europe 1.
But Mr Trichet indicated that the main responsibility for fighting the debt crisis lay with eurozone governments and not the central bank.
Asked how long the ECB would stay in the secondary market, Mr Trichet said: "Obviously I will not tell you," but he said bond-buying was an effective way of restoring stability by transmitting the bank's interest rate decisions through to markets.
"We are in the secondary market. I will not tell you moreover what we are buying. . . or the amount, but the amounts are known of course and in that sense we are totally transparent," Mr Trichet said.
"For a long time now, since May 2010, we effectively have a new measure, an unconventional measure, which allows us to try to better ensure this transmission (of monetary policy decisions)," he added.
The ECB stepped in to markets on Monday to buy Italian and Spanish bonds, forcing down borrowing costs for the two states now at the centre of the euro zone's debt crisis after a weekend of emergency talks between G7 and G20 leaders.
"What we have is a problem of confidence at the moment in the international economy," said Mr Trichet, who urged eurozone governments to do their part in getting parliaments to approve decisions taken on July 21 on new emergency bailout powers.
"What we need is for governments to do what we consider to be their job," he said. "What we ask is that all the decisions which were taken on July 21 be put into effect as quickly as possible."
Meanwhile, Spain's Finance Minister Elena Salgado said the country didn't need a European bailout and she expected "market instability" to ease through the month of August.
She rejected calls for Spanish elections to be brought forward, as the government faces pressure to set a new date for the polls just two weeks after announcing an early vote for November.
Ms Salgado said she hadn't discussed the issue again with Prime Minister Jose Luis Rodriguez Zapatero. "At the moment we have to be focused on combating instability," she added yesterday.
Mr Zapatero set November 20 as the date for the general election on July 29, after insisting for more than a year that his minority government would see out its term through March.
Amid a surge in Spanish bond yields that prompted the ECB to start buying the nation's debt, Spain's two largest opposition parties called for polls to be held sooner to allow a new government to tackle the crisis.
The opposition People's Party would win 47.6pc of the vote, compared with 35pc for the ruling Socialists, if elections were held now, according to a poll published by ABC on Sunday.
"Everything will be on hold for about three months and it's caught us at a very bad time," said Pablo Vazquez, head of Fedea research institute in Madrid and a former government adviser. "At the moment you don't have a government with that legitimacy to take significant measures."
Elections on November 20 would come less than a month after unemployment data are due for the third quarter, when the summer tourist season traditionally eases the unemployment rate, which was 20.9pc in the second quarter.