LONDON (AP) — European Central Bank President Jean-Claude Trichet indicated interest rates in the 16-country euro area would not be rising soon amid an uncertain recovery, and dismissed speculation that Greece might leave the euro over its budget crisis.
At its meeting Thursday in Frankfurt, the bank kept its main refinancing rate at a historic low of 1 percent for the eighth month running.
Trichet warned at a news conference afterward that a tentative recovery that started at the end of last year “is likely to be uneven.”
He gave little indications interest rates would be going up soon, saying inflationary pressures remained relatively benign and inflation expectations remained “firmly anchored” to the ECB’s target. Higher rates are central banks’ chief weapons against rising prices.
Weak growth — which moderates inflation — takes pressure off the bank to make interest rate increases that could hurt growth in some of the lagging members of the eurozone.
Trichet said he did not comment on “absurd hypotheses” when asked at his news conference about the possibility that Greece could leave or be kicked out of the euro.
Greece is set to report a budget deficit of just under 13 percent of gross domestic product in 2009, way above the 3 percent limit allowed for by euro rules intended to support the shared currency. Its crisis has shocked markets and compelled the Greek government to unveil emergency budgetary measures.
Trichet said Greece and other countries with outsize deficits had to “implement appropriate and bold measures” to get their deficits in line with rules intended to support the euro currency.
He also sought to downplay suggestions that the European Central Bank or the EU should rescue any euro member if they run into difficulty.
“The the problem is not to get help. The problem is to help oneself,” he said. “That is absolutely clear and I think the message is easily understandable.”
Trichet said the burden was on the countries themselves to cut deficits in order to comply with the euro rules and to improve their competitiveness — and that belonging to the euro provided members an in-built advantage with dealing with crises, such as easy acess to financing and a strong, credible currency.
Earlier, the Greek cabinet approved an economic recovery plan intended to get the budget deficit to below 3 percent by 2012 and to 2 percent by 2013 through spending cuts and a mainly tax-driven boost in state revenues.
“The (EU) asked us to have an alternative plan ready and we complied with this request,” said finance minister George Papaconstantinou. “If additional measures are needed to meet our targets, those measures will be taken.”
The blueprint is set to be submitted to both the EU and the European Central Bank by Friday.
Trichet said he had not had a chance to assess the Greek government’s proposals yet and indicated that the problems facing the country would not affect interest rate policy. Greece, he noted, accounted for only around 2.5 percent of the eurozone’s total economic output.
“We are running a currency for 16 countries since the first day (in 1999),” said Trichet.
The ECB 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.
And though the eurozone recovered from recession in the third quarter of 2009, largely on the coat-tails of an export recovery in Germany, Europe’s biggest economy, Trichet said growth this year will not be anything special.
“The euro area economy is expected to grow only at a moderate pace in 2010 and the recovery process could be uneven,” said Trichet.