The ECB and Greece

The Greek government has just confirmed Lucas Papademos, the European Central Bank’s vice-president, met with George Papandreou, the Greek prime minister, in Athens at the weekend. Perhaps that is not surprising – Mr Papademos is Greek and might not want to spend every weekend in Frankfurt. But I imagine that they had quite a lot to talk about. The appalling state of Greece’s public finances has become a big issue for eurozone policymakers, with massive errors in past official statistics not helping to calm the mood.

There are also signs of a widening divide between France and Germany, the eurozone’s two biggest members, and countries geographically on their periphery, including Greece. Today’s eurozone purchasing managers’ indices for the manufacturing sector showed France and Germany still powering the rebound in industry, while rates of contraction in production accelerated in Spain and Greece.

The bad news for Greece is that its economy is probably too small to slow significantly the implementation of the ECB’s exit strategy – the unwinding of the exceptional measures taken to support financial markets. Still, the ECB will be wary about adding to financial market nervousness. I would not be surprised to hear some tough words from Jean-Claude Trichet, ECB president, if he is asked about Greece at Thursday’s press conference.

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