ECB shifts stance as deal emerges

Financial Times
July 21, 2011

With near certainty that the rescue package being agreed for Athens will involve some kind of selective default on Greek sovereign bonds, the apparent concession made by the European Central Bank – which had seemed to be steadfastly resisting such a move – deserves scrutiny.

In an interview only days ago, Jean-Claude Trichet, president, was reminding Europe’s political leaders that the bank was “warning... loud and clear” against taking a decision that could lead to a selective default. It followed a string of demands that politicians take the lead in solving the crisis and not expect the central bank to compromise its central mandate of price stability with further firefighting.

But Mr Trichet also accepted this week that, while the ECB had not changed its position, “we are in a domain where governments are responsible”. And as at other times during the financial crisis when the ECB has broken with orthodoxy – such as when it started buying sovereign bonds on the grounds of avoiding disruption in secondary markets – Mr Trichet may again have accepted the political imperative of the move to help Greece.

More