–Adds detail on Stab Pact to story that first ran at 11:32 GMT

MUNICH, Germany (MNI) – The Greek government must embark on
courageous, recognizable and specific actions that will lastingly and
credibly consolidate its public budget, European Central Bank President
Jean-Claude Trichet said Thursday.

Loans are not transfers, and indeed, they come at a cost, the
president stressed in prepared remarks for an economic summit at
Munich’s Ifo Institute.

They also come with strict conditionality, which must assure
lenders that the loans will not only be repaid, but also that the
borrower will be able to stand on its “own two feet over a multi-year
horizon,” the ECB president said.

“In the case of Greece, this will require courageous, recognizable
and specific actions by the Greek government that will lastingly and
credibly consolidate the public budget,” he explained.

Trichet, who met Wednesday with German lawmakers, said his main
message to them was that a “fast parliamentary procedure [to approve
Germany's portion of EMU aid to Greece] was highly recommended in the
present circumstances.”

Trichet said flatly, “I will not comment on the negotiations that
are currently taking place in Athens.”

But, he said, “they have to be concluded by a courageous,
comprehensive and convincing multi-year program and I am confident as
regards the results of these discussions between the Greek government,
the European Commission, the ECB and the International Monetary Fund.”

“What we need at this time is a strong sense of direction. We need
a sense of direction that can guide us on how we can emerge from these
turbulent events and how we can return to the path of economic
stability,” Trichet said.

In the president’s view, this sense of direction can come from
steps including a “strong and credible program negotiated between the
Commission, the ECB, IMF, and the Greek government.”

Looking back at the history of Economic and Monetary Union, Trichet
said that the M (monetary) part of the construction has done well over
the life of the single currency area, keeping an average inflation rate
at around 1.95%.

However, “the main current challenges for our union originate in
the ‘E’. Economic union is based on responsible national policies:
fiscal policies, wage policies, structural policies.”

The crisis has revealed “weaknesses in the peer surveillance
process and in the implementation of the Stability and Growth Pact. Thus
another major lesson of the crisis is the need to strengthen the
institutional framework of the economic union.”

Trichet urged Germany to help with a “leap forward in policy
surveillance and policy adjustment.” Still, “fiscal adjustment alone
will not be sufficient to ensure sustainability,” he said. “Structural
reforms that will lead to more balanced growth are also vital to rebuild
the resilience of our economies.”

“The result must therefore be a renewal of the Stability and Growth
Pact and the incorporation of a framework of surveillance for national
policies of competition,” Trichet said.

“I hope that considerable energy will be devoted to this area in
this country [Germany], so that a central outcome of the present
demanding episode will be to strengthen the foundations of our monetary
union,” he pleaded.

The Stability and Growth Pact must spot and correct deviant
behaviors “at an early stage,” he said.

“Europe has reacted with speed, energy and determination in the
financial crisis. We have to stay on this path. We continue to need wise
and sound, rapid and determined action by all countries,” he urged.

Trichet also underlined that the “primary objective of euro area
monetary policy will remain the maintenance of price stability.”

–Frankfurt bureau; +49-173-694-7935; tbuell@marketnews.com

[TOPICS: MT$$$$,M$$FX$,M$$EC$,M$X$$$,M$$CR$,MGX$$$]