Trichet doesn't want ECB financing bailout funds

European Central Bank President Jean-Claude Trichet said on Tuesday he opposed the ECB financing bailout funds for the crisis-hit euro zone, dismissing one policy response government officials are mulling.

To convince markets they have the firepower to tackle the crisis, policymakers have been considering an option to turn the existing 440-billion-euro (USD 580 bln)European Financial Stability Fund (EFSF) into a bank so that it could access ECB funds, potentially giving it far more liquidity.
Trichet rejected this idea.
"I'm not in favour of bailout funds refinanced by the ECB," he told the European Parliament.
The ECB is already deeply uncomfortable about buying government bonds, something it started doing last year, and there are fears its independence is being compromised. It does not want to be dragged further beyond the central bank's core task of keeping inflation in check.
Trichet put the onus on governments to act, without dragging the ECB further into the policy response.
"Eurobonds and the EFSF are more generally all that is in the hands of governments to handle the situation -- I would say it is their responsibility to face up to the worst crisis since World War Two," he said.
"We are the epicentre of this global crisis," he added.
The growing prospect of a near-term default by Greece has stoked fears of a major banking crisis in Europe which would accelerate a global economic slowdown.
World stocks and the euro hit multi-month lows on Tuesday after euro zone finance ministers said they were reviewing the scale of private sector involvement in a second bailout package for Athens and had agreed to delay payment of its next instalment of aid until November.
Turning to the economic outlook, Trichet said the ECB expected growth in the euro area to be "very moderate" in the second half of this year.
"Medium and long-term inflation expectations remain stable," he added. "The risks to this medium-term outlook were broadly balanced in the eyes of the last Governing Council meeting."
The ECB is likely to leave interest rates unchanged when it holds the last policy meeting of Trichet's presidency on Thursday, but may open the door to a cut under his successor and reintroduce some of its most potent crisis-fighting weapons, including one-year liquidity operations.
(USD 1 = 0.753 Euros)