June 9 - Greece must avoid any form of restructuring as it tackles its debt crisis, according to European Central Bank President Jean-Claude Trichet, as the ECB kept interest rates on hold. Sonia Legg reports.
The European Central Bank was widely expected to keep interest rates at 1.25% this month - but ECB President Jean-Claude Trichet has signalled a hike for July. That´s despite the ongoing debt crisis in the euro zone´s weaker economies. Trichet was questioned repeatedly about Greece during a news conference to discuss the rates decision. The ECB is caught-up in the manoeuvring between the financial markets, euro zone governments and the International Monetary Fund over who pays to avoid Greece defaulting on its debt. Trichet said he is not in favour of Greece restructuring its debt. SOUNDBITE: Jean-Claude Trichet, European Central Bank President, saying (English): "We exclude all concepts which would not be purely voluntary, without any elements of compulsion. We call for avoiding any credit event and selective default, say. And of course, default." The markets had widely expected the ECB decision and it only gave the euro a short-lived boost. But traders say they don´t see how Trichet can raise rates twice more this year, when the debt crisis is still raging. SOUNDBITE: Robert Halver, Trader at Baader Bank, saying (English): "The ECB is well aware it cannot hike interest rates where it should be to compete against price pressure. But we all know that the southern borders of the euro zone, Spain, Italy, Portugal and Greece, they need still a low interest rate environment or they will have big economic problems." The problems in Greece are clear enough - and euro zone official sources now say Greece will need an extra 120 billion euros, rather than the 90 billion euros previously suggested. That money would see the country through until 2014. German Finance Minister Wolfgang Schaeuble has called for a "substantial contribution" from private holders of Greek debt and has suggested extending the maturities of outstanding loans. But Trichet´s comments appear to show he opposes this kind of pressure. Joanna Partridge, Reuters