BASEL, Switzerland (MNI) – The European Central Bank on Monday
morning began its interventions in public and private bond markets to
confront the growing crisis, President Jean-Claude Trichet confirmed
Monday afternoon.

Speaking in his capacity as ECB President, Trichet — who also made
comments in his role as chairman of the bi-monthly Global Economy
Meeting held at the Bank for International Settlements — said that the
Governing Council had yet to decide on matters of scope of the
interventions and ex-post communication of details, as well as on how
authorities would mop up the liquidity they will inject in this context.

Term deposits would be one easy and effective means of withdrawing
liquidity, said Trichet, who stressed the inflexible attachment of the
ECB to stable prices and well-anchored inflation expectations and
emphasized that the decisions announced early this morning by the
central bank were not made under duress of any sort, given the
institution remains determinedly independent.

Growth at a global level is not merely confirmed, but bears some
aspects of acceleration and a self-sustaining nature, he said. The
Eurozone is also seeing some positive growth signs, he said.

“For us what is absolutely decisive and which we mentioned in our
own communique is the commitment of the governments of the euro area —
and I quote — ‘to take all measures needed to meet their fiscal targets
this year and the years ahead’,” he said.

This commitment as well as the one to take additional measures as
needed Trichet alternately characterized as “extremely important,”
“absolutely crucial,” and “absolutely essential.”

The ECB’s momentous decisions were taken in view of dysfunctional
markets that hampered the normal transmission of monetary policy, he
maintained.

“We had already said that the monetary policy stance was
appropriate, it was what I had as position of the Governing Council when
we met last Thursday,” he explained. “We decided to do something that
would not change the monetary policy stance, that would not change in
any respect the goal of price stability over the medium term and the
solid anchoring of price stability, which is our primary goal and to
which we are inflexibly attached.”

Trichet emphasized the ECB’s determination to withdraw the
liquidity injected in the course of the interventions. “Again, the
monetary policy stance is maintained exactly as it was before,” he
reiterated.

As to how the ECB will withdraw the liquidity, “a possibility …
would be to have term deposits,” he allowed, given that “this is
something which is simple to operate, immediately available and
effective in this respect.”

It is “appropriate” under the circumstances for the three-month
refi operation of the Eurosystem to return to a full-allotment,
fixed-rate mode, he said.

Asked to provide details of the ECB’s expected bond purchases,
Trichet declined, saying, “We will see exactly how to communicate. As I
said, at this stage I give you no particular information. I only confirm
that it has started this morning. I will tell you later on how we will
communicate ex post and what we are doing.”

The Council will decide on the scope of the operations and for now
it suffices to know that the ECB will “do what is necessary” in the
context of this “Eurosystem operation,” he said.

Trichet adamantly rejected the notion that the ECB’s independence
is compromised, calling the institution “fiercely and totally
independent.”

“This decision is the decision of the Governing Council and not the
result of any kind of pressure of any sort,” he insisted. The move was
made “totally independently of any kind of signaling or suggesting or
whatever,” he said, adding that “I told that to the various governments
of Europe in the fiercest manner including when i had the meeting with
the heads.”

He continued: “We have judged that it was for us … appropriate in
circumstances that took into account what happened last Thursday and
last Friday … our monetary policy channels are not functioning … and
that’s the reason why we took our decision.”

“That being said, like I said, what is of extreme importance is the
… strict and rigorous implementation of the rules on fiscal policy,”
he added.

Asked whether it would have been better to act sooner, Trichet said
it is always necessary in times of crisis to have a correct diagnosis
and then act rapidly.

Referring to the renewed dollar swaps with the U.S., he said he was
“very, very grateful to the Federal Reserve that we could have this
important operation.”

–Frankfurt bureau tel.: +49-69 720142. Email: dbarwick@marketnews.com

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