LONDON (AP) — Markets will look for the European Central Bank’s views Thursday on the outlook for an uneven recovery amid mounting concerns about the burden placed by indebted governments, particularly that of Greece, on the continent’s monetary union.
The monthly interest-rate meeting of the bank’s governing council is not expected to touch rates, currently at a historic low of 1 percent.
Bank President Jean-Claude Trichet will likely face questions about government debt and Greece at his news conference after the decision. A scathing report Tuesday by the European Commission on the unreliability of Greece’s budgetary data reignited speculation that Greece may need to be bailed out by its partners in the European Union or even be compelled to leave the single currency bloc.
Greece shocked bond markets and other EU governments in October when it announced that its 2009 deficit would be 12.5 percent of gross domestic product, far above the 3.7 percent it estimated the previous spring. The report from the European Commission suggested further revisions were not impossible and shook confidence again.
Members of the euro agree to limit their budget deficits to 3 percent of GDP in order to support the shared currency. Other countries have broken the limit in the past, but Greece’s troubles are sufficiently serious to raise questions about whether it can solve them.
Greek Prime Minister George Papandreou said the country did not need an international bailout, as experts from the International Monetary Fund, which has bailed out several countries that ran into trouble during the crisis, visited Greece on Wednesday. The Greek Finance Ministry said it invited them to seek advice and international credibility.
“There is no way that we will either leave the euro or seek (outside) support with the International Monetary Fund. We do not need to,” said Papandreou, making comments to mark 100 days since taking office.
Many economists think the worrisome debt situation of countries on the periphery of the eurozone, including Greece, Spain and Ireland, will help persuade the bank to hold off from raising its benchmark interest rate for a while yet.
Others think that would be a mistake and that sustained low interest rates will mean inflationary pressures start to emerge sooner than they would otherwise.
Although rates are not expected to move for now, the bank could face a difficult year because unemployment rates are diverging sharply in the euro zone, with the Netherlands at 3.9 percent and Spain at 19.4 percent. That could make it harder to find one interest rate low enough to spur growth in the laggard countries while containing inflation in countries that are growing more rapidly.
The European Central Bank already has sketched out the beginnings of an exit strategy from some of its anti-crisis measures. At its last rate-setting meeting in December, the bank took its first steps to withdraw some of the extraordinary financial support measures introduced during the financial crisis, now that a moderate recovery is under way. The eurozone grew by a quarterly rate of 0.4 percent in the July-September period, with Germany and France leading the way.
As a first step, the central bank said December’s 12-month offering of credit to banks would be the last and the 6-month liquidity offering would end in March — extra measures that were designed to keep money and credit flowing through the economy.
“After outlining the start of its exit strategy last month, we doubt that the ECB will announce any further changes at the forthcoming meeting,” said Jennifer McKeown, senior European economist at Capital Economics.
McKeown said Trichet would likely use his ensuing news conference to continue to stress that the economic recovery in the eurozone will continue to be modest , implying that inflation should not be a concern for a while.
The European Central Bank, which sets interest rates and monetary policy for the 16 countries that use the euro, is tasked with keeping inflation at close to, but below, 2 percent. In the year to December, official figures showed that inflation indeed remained subdued at an annual rate of 0.9 percent.