Trichet warns of threat to credibility

As spreads on Greek bonds narrowed slightly yesterday, Greece was on the receiving end of a warning from European Central Bank (ECB) President Jean-Claude Trichet about the impact a country’s sliding credibility can have on its economic recovery. Trichet told French newspaper Le Monde that the fiscal situation in some European countries is so bad that there is a danger markets will lose faith in them, without specifically naming Greece or any other country. «Some countries are in a relatively favorable position because their past management was prudent, while others are already very close to losing their credibility,» he was quoted as saying in the newspaper. «The success of the recovery in Europe depends on the confidence of investors in the creditworthiness of sovereign issuers.» Greek bonds snapped three days of losses yesterday, with the 10-year yield falling 10 basis points to 4.76 percent, after rising on Monday to the highest level since July. The yield on the Greek notes increased 20 basis points in the three days up to Monday as the nation’s deteriorating finances deterred investors from holding government debt. Speculation that Greek banks might soon be seeing limited access to cheap ECB funds, thus spoiling their appetite for Greek bonds, sent spreads wider before the Greek central bank denied the market rumor. Meanwhile, EFG Eurobank Ergasias said yesterday it has reduced its participation in the ECB’s unlimited liquidity program by 50 percent over the last six months. «Due to the group’s significantly improved liquidity in Greece and internationally over the past six months, EFG Eurobank has significantly reduced the use of the ECB’s liquidity mechanism by 50 percent, equivalent to 6 billion euros, and is gradually reaching its pre-crisis levels of use of the mechanism,» according to Eurobank Deputy Chief Executive Officer Nikolaos Karamouzis.

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