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Last updated: January 14, 2010 8:12 pm
The European Central Bank on Thursday issued a blunt warning to high-borrowing governments that they risked a damaging backlash from financial markets as it escalated the pressure on Greece to bring its public debts under control.
Comments by Jean-Claude Trichet, ECB president, making clear that Greece would receive “no special treatment,” highlighted the wrath Athens faces after years of misleading statistics that hid the scale of its problems.
Mr Trichet also went further than before in warning that highly indebted eurozone countries risked “rapid changes in market sentiment” hitting economic growth and undermining credibility of European Union rules and institutions.
With the ECB demanding greater transparency in budget setting, Greek television broadcast a live cabinet presentation on Thursday by George Papaconstantinou, finance minister, of the country’s three-year plan to curb its budget deficit. But financial markets reacted negatively. The cost of insuring Greek debt rose on Thursday to the highest levels seen since the market was launched in 2004. The Greek bond markets also sold off, dipping to 12-month lows.
Mr Trichet spoke after the ECB left its main interest rate unchanged at a record low of 1 per cent for the eighth consecutive month. The ECB forecast of “moderate” growth and inflation this year also remained unchanged, encouraging markets to push to 2011 the expected date of its first interest rate rise.
Mr Trichet sought to downplay the wider repercussions of the Greek crisis, dismissing as “absurd” the idea that Greece would leave the eurozone. Greece accounted for only about 2.5 per cent of eurozone gross domestic product, he pointed out.
But Mr Trichet’s remarks signalled ECB opposition to any broader European bail-out plans. “The problem is not to get help but to help oneself,” he said.
Greece’s ambitious three-year stability plan, unveiled on Thursday, calls for cutting a soaring budget deficit from 12.7 per cent to 2.8 per cent of gross domestic product by the end of 2012.
A rebound in growth is also projected, with the economy forecast to expand by 1.5 per cent of GDP in 2011 and 1.9 per cent in 2012 after shrinking by 0.3 per cent this year.
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