European Central Bank President Jean-Claude Trichet said on Wednesday he expected markets to reward Greece for its fiscal consolidation measures. Trichet also said economic growth in the eurozone would be modestly positive this year and pick up speed in 2011. He called the Greek government measures courageous.
Greece is struggling to handle a 300 billion euro debt pile and has agreed austerity measures to reduce its deficit to 8.7 percent of gross domestic product this year from 12.7 percent in 2009. Confidence in Greece as a borrower has been shaken with the premium investors demand to hold Greek government paper instead of German benchmark bunds rising to 346 basis points on Wednesday.
Greek borrowing costs have not come down despite a deal last week to aid the country if it were unable to borrow on the markets. Greece would qualify for assistance only if it were unable to borrow on the markets, and a unanimous eurozone decision would be required to trigger a rescue.
Eurozone states would provide the majority, some said two-thirds, of help in co-ordinated bilateral loans, on strict conditions proposed by the European Commission and the European Central Bank, while the International Monetary Fund would provide the rest.
Trichet said the deal was helpful. Trichet also said the IMF had a role to play in a potential rescue, calling the use of its expertise welcome. But Trichet said eurozone countries should use peer pressure to keep fiscal deficits at bay along the EU's Stability and Growth Pact, which spells out maximum public sector deficits at 3 percent of the gross domestic product.
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