European Central Bank’s Trichet says governing council did not discuss buying government bonds

ECB did not discuss buying government bonds

LISBON, Portugal — The European Central Bank’s left interest rates unchanged Thursday and did not unveil any new measures to ease the debt crisis engulfing the eurozone.

Bank President Jean-Claude Trichet said Europe’s economy was recovering and downplayed risks that Greece’s crisis would infect Spain or Portugal.

“Portugal and Greece are not on the same boat, and this is very visible when you look at the fact and figures,” he said. “Portugal is not Greece. Spain is not Greece.”

In his press conference after the bank decided to keep its main interest rate unchanged at 1 percent, Trichet said the bank’s governing council did not discuss buying government bonds — one anti-crisis measure some economists are calling for — nor the need to create an orderly default mechanism for the eurozone, as urged by others.

There has been widespread speculation in the markets that the bank may take further anti-crisis steps to keep the debt crisis in Greece from spreading to other countries and dragging down the euro, which has been falling by the day.

Trichet unveiled no new crisis measures, but held out the possibility that the bank was “permanently on the alert and capable of taking the appropriate decisions even if they are unconventional.”

But he mostly urged governments to take on the responsibility of cutting debt and getting their houses in order.

“We ask each institution to take its own responsiblity.. to take its own decision commensurate with its own responsbility,” he said.

Though the bank is prohibited from bailing out profligate governments, a number of analysts think the Bank could sanction bond purchases by pointing to the need for maintaining stability in the eurozone — buying bonds would help support bond prices and keep rates low as well as supporting the balance sheets of banks holding them.

Trichet backed the Greek government’s plan to get a handle on its budget deficit, which is currently being debated in the Greek Parliament. Greece has been required to make further spending reductions and tax increases in return for getting a €110 billion ($140 billion) financial bailout package from its 15 partners in the eurozone and the International Monetary Fund.

He also dismissed suggestions that Greece will end up defaulting on its debt even after getting the money. “Default for me is out of the question,” Trichet said.

The markets remain extremely skeptical about the Greek government’s ability to push through the austerity required and Wednesday’s tragic death of three people in a bank in Athens during a 100,000 strong protest have done nothing to increase optimism — that is clearly evident in the performance of the euro, which sank another 1 percent to a 14-month low of $1.2692.

Trichet also hinted that there was some opposition on the governing council to the Bank’s surprise announcement earlier this week to scrap 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.

Trichet said there was “an overwhelming majority” in favor of the move, in contrast to the “unanimous” agreement to backing the bailout and keeping interest rates at the record low of 1 percent.