FRANKFURT (MNI) – The European Central Bank will rely principally
on term deposit tenders to drain extra liquidity injected into the
markets through its purchase of government bonds, ECB President
Jean-Claude Trichet said in an interview with German daily Handelsblatt
on Friday.

Trichet told the newspaper that the central bank had not changed
its monetary policy stance and that it is committed to withdrawing all
extra liquidity injected.

“The additional liquidity that we are providing through the
purchase of government bonds will be withdrawn again,” Trichet said.

“We are not changing our monetary policy stance. We are not
embarking on quantitative easing. We will withdraw the liquidity that we
will inject mainly through tendering term deposits,” he added.

This is the first time the ECB has indicated how it plans to offset
the liquidity created by its bond buy program.

Trichet offered assurances that sterilizing the government bond
purchases “does not present technical difficulties,” and he reiterated
that the “the Governing Council will not tolerate inflation.”

Trichet declined to disclose the intended volume of the purchase
program “at the moment.”

The ECB president once again defended the Governing Council’s
decision to embark on a government bond purchase program only three days
after he said such a program had not been discussed.

But on the very afternoon he made that comment, and into the
following day “we were facing a situation that we regarded as
fundamentally abnormal. That situation deteriorated abruptly, sharply
and extensively,” Trichet explained.

“The situation in a number of financial markets was hampering the
transmission of our monetary policy, a monetary policy stance that we
had judged to be appropriate precisely the previous Thursday,” he added.
“That had to be put right. The exceptional circumstances demanded that
we act swiftly.”

Trichet rejected the notion that the bond program might not be in
full conformity with the spirit of the Treaty.

With regard to the cause of the current crisis, Trichet said that
Greece was “clearly in a unique exceptionally grave situation before it
embarked on its adjustment programme,” but he noted that the country had
already adopted some tough measures.

The ECB and the IMF will monitor very closely the implementation of
the additional measures, he said. “But what is also decisive is that all
Governments take fully their responsibilities of surveillance.”

All other Eurozone countries, too, must “implement programmes
commensurate to recover a sound fiscal situation,” Trichet urged.

“We certainly do need change in Europe – fundamental change. Not
only in the area of surveillance and monitoring of fiscal policy, but
also as regards structural reform policies and competitiveness
policies,” he argued.

Eurozone countries “must keep to the rules and commitments. They
must behave themselves properly and alert their peers, the other
Governments, to also behave properly. Mutual surveillance is essential,”
Trichet said.

“We need to improve drastically everything: the quality of the
diagnosis and recommendations by the Commission, much stronger
procedures – and where necessary automatic procedures and tools – to
prevent ex-ante bad policies, and much more effective sanctions
ex-post,” he elaborated.

Trichet rejected the notion that fiscal discipline would hamper
growth in the Eurozone.

“It is a complete fallacy to say that fiscal soundness dampens
growth. It is exactly the contrary. It is the absence of fiscal
credibility which dampens growth,” he said.

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