I was struck by the comments on Greece yesterday by Jean-Claude Trichet, European Central Bank president. Asked about the country’s acute fiscal difficulties and the risk of a possible default, he said simply that “I have confidence that the government of Greece will take the appropriate decisions”. That suggested he did not rule out totally Greece facing problems in servicing its debt or being forced into the hands of the International Monetary Fund. As Erik Nielsen, European economist at Goldman Sachs, told me later: “If you have ‘confidence’, you can also be disappointed.”
I am sure Mr Trichet did not want to suggest that a Greek default is at all likely. Rather, I think that he, like other European Union policymakers, is keen to keep up the pressure on the new Socialist administration in Athens. The aim is to avoid “moral hazard” - that by suggesting European Union authorities would ride to the rescue, governments are encouraged to act recklessly. Earlier this year, when the risk of a systemic crisis was high, Greece might have expected more comforting words from Frankfurt.