European Central Bank meets amid bleak backdrop as Greek debt spirals

Athens deaths a bleak backdrop as ECB meets

LONDON — Fears that the Greek debt crisis is spiraling out of control could push the European Central Bank to take an even bigger role in stabilizing the situation — and rescuing the euro from the worst crisis since it was created 11 years ago.

The death of three people in an Athens bank during a 100,000-strong protest against government austerity measures have shaken confidence in the markets as well as raising concerns about the very future of the currency itself.

That is the tragic backdrop to Thursday’s meeting of the European Central Bank in Lisbon, Portugal, when the governing council is expected to keep its key interest rate unchanged at a record low of 1 percent — in part because of the danger that the Greek bailout will not keep bond markets from turning on fiscally challenged Portugal and Spain.

Investors are skeptical about the ability and inclination of the euro zone, and especially its largest member Germany, to bail out anyone else — last weekend, Greece’s 15 partners in the euro zone and the International Monetary Fund agreed Sunday to give the country $110 billion ($141 billion) to avoid an imminent, disastrous default.

But that hasn’t helped to assuage concerns in the markets that the Greek government can actually deliver the austerity measures it has promised as its part of the deal or that the crisis will spread to other indebted countries like Portugal and Spain — those fears pushed the euro down to a new 13-month low of $1.2805 Wednesday.

So the ECB may find itself pushed to play a more central role in resolving the crisis.

For Bank President Jean-Claude Trichet, one of the chief guardians of the euro, it’s important that he dampens down talk of a wave of debt crises across the euro zone.

One idea being openly discussed is that the ECB may introduce a new anti-crisis measure, such as supporting bond prices — and the balance sheets of banks holding them — by buying government bonds even though the bank’s constitution says it can’t directly bail out profligate governments.

Jacques Cailloux, chief euro-zone economist at Royal Bank of Scotland, thinks that the ECB would be better “breaking the rule-book than breaking up the euro area” and use this opportunity to take the helm to deliver the best bet to resolving the biggest crisis to afflict the euro since its launch in 1999 — actually purchase government bonds in the bond markets.

“It should regain its leadership in tackling the crisis following a complete communication and coordination failure among euro area fiscal authorities around the Greek crisis,” he said.

The bank has already stepped in by dropping the rating requirement for Greek debt to be used by banks as collateral for ECB credits. That will support Greek bond prices and the banks holding the bonds in case Greece is hit with further ratings downgrades.