European Central Bank President Jean-Claude Trichet has said that it is “out of the question” that Greece would default and at their monthly meeting ECB policymakers did not even feel the need to talk about buying euro zone government bonds.
That is the so-called ‘nuclear option’ for the ECB to try to head off the euro zone debt crisis.
Trichet said EU governments are lending Athens the money it needs: “The governing council – taking fully into consideration the situation of the recovery programme of Greece – decided that it would indeed tell the governments that there was a case for activating the bilateral loans.”
The European Central Bank’s decision to hold off on buying government bonds disappointed financial markets that are fearful a debt crisis will engulf the euro zone.
As Trichet spoke at a news conference in Lisbon, the euro fell for a third day running. It hit a new 14-month low below $1.27. At the start of the year it was worth close to $1.52.
Traders said that they wanted to see some positive action from the ECB. When they did not get it the cost of insuring Greek debt against default leapt to new peaks. And it was the same story for Portuguese and Spanish debt.
That came even as European Council President Herman van Rompuy added his voice to the chorus on the issue.
Rompuy, who is chairing a euro zone summit on the crisis on Friday, said Portugal or Spain’s situation had nothing to do with Greece.
“What I now see are totally irrational movements on the markets set off by unsubstantiated rumours, for instance with Spain, but also as regards to Portugal,” he said.
At its monthly meeting, the ECB kept benchmark interest rates at a record low of one percent for the 12th month in a row.