ECB President Trichet Expresses “Grave Concerns” About Stability Pact

NEW YORK (Forex News Now) – The President of the European Central Bank, Jean-Claude Trichet, delivered an address today in Frankfurt on the European Union’s stability pact, just as Ireland’s Finance Minister welcomed the possibility of a bailout in a speech in Dublin.

In his address, Trichet said he had “grave concerns” about a stability pact that could “evolve into a dependency as conditions normalize.” These concerns are largely fueled by the central bank’s massive interventions in Greece and Ireland (if Ireland accepts an offer of a bailout), and the fear that national banks in the EU will rely too heavily on the ECB instead of healthy market forces.

Trichet also spoke on the future of the ECB and measures it may need to take in the near and long-term future.  The primary objective, though, remains unchanged – keeping inflation close to but below 2% for the euro zone.

“In the past days, taking into account the lessons of the global crisis in particular as regards its impact on the European single market and in the single currency area, we have called, and are still calling, for a quantum leap of governance,” Trichet said. “Every day I am even more convinced that this is absolutely essential.”

Trichet’s previous comments indicate that such a ‘quantum leap’ would entail increased surveillance and governance over national bank operations, including such actions as maintaining acceptable capital requirements, ensuring that deficits as a percentage of GDP are below 3%, and observing lending and borrowing between nations and the ECB.

This address comes as a team from the ECB, International Monetary Fund, and European Monetary Union analyzes financial data from Irish banks in an effort to evaluate the country’s need for intervention or financial assistance.

Ireland’s Finance Minister, Brian Lenihan, said today that he welcomes “substantial contingency capital funding” – a.k.a. a bailout – for the beleaguered Irish financial system that has been battered by a collapsed property market and sell-offs of Irish bonds.

Previously, before investors unloaded Irish government assets, the government of Ireland was reluctant to embrace any financial assistance.  Now, though, a bailout is very likely – and could cost anywhere between 45 and 90 billion euros, depending on the scope of the situation.

It is also likely that such an event would provide online forex news to drive the euro down against its two main competitors.

In global forex trading today, the euro climbed 0.55% against the dollar, to 1.36, and fell slightly against the pound by 0.01% to 0.8503.