European Central Bank president Jean-Claude Trichet urged eurozone governments on Monday to quickly implement a debt crisis plan, under a cloud of high economic uncertainty and market turmoil.
Eurozone leaders approved a second bailout of Greece last month and decided to expand the powers of their debt rescue fund but the Greek rescue is stalling over Finnish demands for Athens to offer collateral. The package must be approved by all national parliaments.
“The full and timely implementation of the July 21 agreement between heads of state or government is of essence in this respect,” Trichet told the European Parliament’s economic affairs committee.
“While a special arrangement for Greece has been launched, the inflexible determination of all other euro area governments to fully honour their own individual sovereign signature is key in returning to sustainable and healthy public finances and contribute to stable market conditions,” he said.
Trichet noted that the economy of the 17-nation eurozone has slowed — after growing 0.8 per cent in the first quarter it sputtered at 0.2 per cent in the second.
“Looking ahead, we continue to see the euro area economy growing at a modest pace in a context of overall relatively sound economic fundamentals for the euro area as a whole,” he said. “At the same time, not least because of the recently re-emerged tensions in financial markets, uncertainty remains particularly high.
“This mainly relates to ongoing fiscal and economic adjustment in a number of euro area countries and most other advanced economies, as well as the overall outlook for the global economy.
“In particular, the United States has been facing both fiscal and structural headwinds amidst weakened economic prospects.”
Trichet predicted that inflation in the eurozone would remain above the ECB benchmark of just under 2.0 per cent in the coming months.
“Risks to the medium-term outlook for price developments are under study in the context of the ECB staff projections that will be released early September,” he said.
Economists do not expect a new interest rate hike by the ECB this year after two increases to 1.50 per cent.
