ECONOMY

ECB head moves to quell fears

The head of the European Central Bank sought to bolster eurozone confidence yesterday, ruling out a Greek default and insisting that Spain and Portugal were not in the same boat as Greece, as Moody’s warned of threats to lenders in the region. «Default is for me out of the question,» Jean-Claude Trichet said following an ECB meeting in Lisbon. The central bank chief also tried to quell market fears the financial turmoil afflicting Greece might spread to other countries in the 16-nation eurozone. «Greece and Portugal are not in the same boat,» Trichet told a press conference after the bank left its main lending rate at a record low of 1 percent. «I would say Spain is not Greece,» he added a short while later. Portugal and Spain are the two countries most often mentioned as financial market targets owing, like Greece, to swollen public deficits. In general, Trichet commented little on Greece, which is battling to correct a public deficit of 13.6 percent of output and pay down 300 billion euros in debt. The ECB president did state, however, that the bank’s governing council had not discussed the possibility of buying government bonds, as many analysts have speculated it will, in order to provide debt-crushed governments with financial support. His remarks failed to shore up European markets. The euro fell below 1.27 dollars, striking a near 14-month low, 1.2691 dollars. Equity markets also suffered losses. The Greek crisis has slashed the value of the euro against that of other major currencies, something which cuts both ways since it boosts eurozone exports but also raises the cost of energy paid for in dollars. Europe’s fiscal crisis could threaten banks in Portugal, Spain, Italy, Ireland and the UK as the risk of contagion grows, presenting them with a «common threat,» Moody’s said yesterday. «Overall, Moody’s notes that each of these countries’ banking systems faces different challenges of different magnitudes, but warns that contagion risk could dilute these differences and impose very real, common threats on all of them,» Moody’s said in a report. «Market sentiment can be sufficiently strong [and long-lasting] to create its own reality and expose all these countries to a common threat.» Meanwhile, Spain paid the highest yield since 2008 to sell five-year bonds yesterday. The yield premium investors demand to hold Greek 10-year bonds instead of benchmark German Bunds rose to 800 basis points. Fund says skepticism is overblown The International Monetary Fund considers the 110-billion-euro rescue package it and eurozone countries are providing to Greece is sufficient and skepticism from markets about whether it will work is overblown. The IMF meets Sunday and is expected to approve its share of the bailout which amounts to about one-third of the total. IMF spokeswoman Caroline Atkinson said yesterday the three-year package would be sufficient to prevent Greece from defaulting on its debt and «it appears there is an overreaction» by markets concerned that Greece’s efforts to put its finances in order may fail. She also sought to dampen speculation that Greece’s problems could spread to other eurozone countries, saying their economic situations were different. Asked what the US share would be in the financing of the IMF loan it will be considering May 9, Atkinson said it’s not yet known which currencies will be used for the initial disbursement. Because the IMF is «a cooperative,» every country’s contribution «in some broad sense reflects their contribution to the IMF,» she said. A default by Greece on its debt is «not on the table,» Atkinson said.