Weaker-than-expected growth seen for eurozone
BRUSSELS - Jean-Claude Trichet, president of the European Central Bank, acknowledged yesterday that growth in the eurozone could be weaker than expected, suggesting that the central bank might be more reluctant to raise interest rates again.
But Trichet told a special session of the European Parliament, called to discuss the debt crisis in Europe, that inflation could remain above the bank’s target level of 2 percent “over the months ahead’’ and predicted that growth would continue at a “modest pace.’’
The central bank plans to release a new forecast in early September.
Other senior officials yesterday underscored concern about weaker growth prospects for the eurozone, which is still reeling from a series of debt crises that began in Greece.
Olli Rehn, the European commissioner for economic and monetary affairs, said that “short-term growth prospects have somewhat worsened compared to our spring forecast.’’ Rehn emphasized the dangers posed by continuing bouts of volatility, saying that “financial markets and the real economy move now more in synchrony.’’ That made Rehn “seriously concerned about continued financial turbulence spilling over to and potentially harming the recovery of the real economy.’’
Rehn also appeared to reject suggestions from Christine Lagarde, managing director of the International Monetary Fund, that the eurozone’s bailout fund should be used to inject capital into European banks.
“EU banks are significantly better capitalized now than they were one year ago,’’ Rehn said.
“Those banks whose capital positions were found to be too weak by the stress tests were required to take appropriate action within six to nine months,’’ he continued. “Private sector solutions - rights issues, sale of assets, mergers, et cetera - are preferred. However, public sector intervention is required, if such private sector solutions were unavailable. This process is now moving forward.’’
The most immediate concern for officials remains Greece, which is awaiting another bailout to be worked out by European leaders. But that plan has become mired in concern about how the Greek government will pay back the huge sums of money that have been promised.
Yesterday, European officials sought to ease the logjam over the bailout, with Finland appearing to show greater flexibility over demands that Greece provide collateral in exchange for further aid to its economy.
“We are not there to cause problems, we are there to solve problems,’’ the Finnish foreign trade minister, Alexander Stubb, told reporters at a news conference in Helsinki.