–Adds Comments On the Euro, Governance, The Fed, The EMU Economy

PARIS (MNI) – The European Central Bank’s bond purchasing program
is continuing and market observers have seen that, ECB President
Jean-Claude Trichet said Friday.

Speaking at an event in Paris a day after his monthly press
conference, Trichet also repeated that ECB’s official interest rates are
“appropriate.” He also said it was “appropriate” to keep the central
bank’s non-standard measures for now, “given what we are observing.”

Trichet reminded that the ECB had announced on Thursday that it was
extending all of its fixed-rate, full-allotment refinancing operations
at least through the end of the first quarter.

“We have also said that our program of acquiring bonds is ongoing,
and that’s what observers of the market have seen,” the ECB chief added,
in an apparent reference to what traders said was an aggressive
intervention by the central bank on Thursday even as Trichet was
speaking to reporters in Frankfurt.

In what might also have been a reference to the ECB’s decision to
step up bond purchases, at least for now, Trichet said authorities must
take “measures that are commensurate” with the circumstances, and that
they must be commensurate not just qualitatively but also
“quantitatively.” He later made clear he was calling on all authorities,
including governments and the ECB, to be “up to their responsibilities.”
He assured that the central bank was.

Trichet reiterated his position against “excessive volatility” in
exchange rate markets and said emerging countries with managed exchange
rates — “China, but not only China” — should pursue policies that lead
to currencies that are “progressively more flexible.” However, he
dismissed the idea of a “currency war,” calling it an “unfortunate” term
that does not “correspond to the reality of what’s in the minds of
officials” who are engaged in policymaking to address the current
situation.

Trichet also reaffirmed his faith in the future of the Eurozone,
despite the current turbulence, noting that it had delivered better
price stability in its twelve years of existence than had been achieved
by predecessor central banks in Europe, including the Bundesbank and the
Bank of France — which Trichet himself once headed.

“The euro is a credible currency. It has conserved its value,”
Trichet declared. And he asserted that it is widely expected “to be as
credible in the next ten years as it has been in the last twelve.”

Asked if he thought Portugal or Italy were in danger of going the
same way as Ireland and Greece, Trichet dodged the question, saying only
that all European countries, “without exception,” must have “credible
goals” for next year and beyond.

Trichet stressed repeatedly the importance of tightening fiscal
surveillance and strengthening joint economic governance in the EU, and
particularly in the Eurozone. He evoked the battle he had waged with
Germany and France in 2005, when they wanted to water down the fiscal
rules in the EU’s Stability and Growth Pact — an effort that seems,
with hindsight “surrealistic,” he said. Though that battle was won, it
seemed to have “weakened the spirit” of fiscal resolve in Europe, he
said.

Now that debate is coming home to roost. The need for stronger
economic governance in Europe is the “principal lesson” of the crisis,
Trichet said. He called for not only fiscal but also macroeconomic
governance to be strengthened “formidably.” But he said a full-fledged
federal Europe was not realistic in the foreseeable future, calling
instead for a “quasi-federation.”

Trichet also lauded last weekend’s statement by Eurozone finance
ministers announcing an agreement to create a new European Stability
Mechanism and detailing the circumstances under which private creditors
might be asked to accept a restructuring of their sovereign debt
holdings.

The use of “collective action clauses,” which would allow creditors
to vote on a debt-restructuring plan if a country is determined to be
insolvent, is not “divergent from the doctrine of the rest of the world”
or the IMF, Trichet said.

Before last weekend’s statement, markets had reacted violently to
Germany’s unspecified call for private creditor participation in future
bailouts, and the sell-off in peripheral government bonds of mid- to
late November was largely attributed to that. The clarification and
details provided by the finance ministers was “useful,” Trichet said.

The ECB chief took a moment to extol his bank’s “confident”
relationship with the U.S. Federal Reserve and said the two central
banks were capable of “intimate cooperation” when necessary. He also
said the Fed’s definition of price stability was “about the same” as the
ECB’s.

Trichet noted that despite the financial market chaos, the
Eurozone’s economy, in the aggregate, is showing considerable
resilience. He said the strength of the recovery in the first half of
this year, and especially in the second quarter, was “a very big
positive surprise.” Since the third quarter of 2009, when the Eurozone
economy emerged from recession, “I see that our own forecasts, and
others — the IMF, the [European] Commission — show a tendency to
improve,” he said.

“The European economy has shown its capacity to be relatively
dynamic,” Trichet said. However, he hastened to add, “this is no time
for complacency.”

–Paris newsroom, +331-42-71-55-40; bwolfson@marketnews.com

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