But Mr. Trichet told a special session of the European Parliament’s economic committee, 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 on Monday underscored concern about weaker growth prospects for the euro zone, which is still reeling from a series of debt crises that began in Greece.
Olli Rehn, the European commissioner for economic and monetary affairs, addressing the same committee, said that “short-term growth prospects have somewhat worsened compared to our spring forecast.”
Mr. 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 Mr. Rehn “seriously concerned about continued financial turbulence spilling over to and potentially harming the recovery of the real economy.”
Mr. Rehn also appeared to reject suggestions from Christine Lagarde, the managing director of the International Monetary Fund, that the euro zone’s bailout fund should be used to provide a big injection of capital to European banks.
“E.U. banks are significantly better capitalized now than they were one year ago,” Mr. Rehn said. He noted that in recent months European banks had “increased their capital by some 50 billion euros,” or $72.5 billion.
“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, etc. — 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 worked out by European leaders in July. 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.
On Monday, 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. “Never underestimate the pragmatism of a country like Finland or the inventiveness of an institution like the E.U.”
At the same news conference, Werner Hoyer, the deputy foreign minister of Germany, said, “Finland doesn’t have the reputation as a troublemaker, so I’m very optimistic.”
Failing to resolve the dispute over collateral — which could come in the form of Greek property or government assets — could derail aid to Greece and throw Europe back into crisis as the central bank seeks to defend other vulnerable countries, like Spain and Italy, in the bond markets and to contain their borrowing costs.
Jean-Claude Juncker, the prime minister of Luxembourg and president of the Eurogroup, a forum of euro zone finance ministers, told the parliamentary committee in Brussels that there should soon be a proposal to resolve the “collateral guarantee difficulty.” Mr. Juncker said governments were “working on a proposal which I hope all euro zone member states will be happy with.”
The dispute over how to guarantee money lent to Greece is not the only uncertainty hanging over the bailout package. Greece wants banks and other investors to swap at least 90 percent of their existing holdings for new bonds that would be worth less but carry guarantees. To make sure that target is met, the Greek government wants to extend the swap by four years to include bonds maturing as late as 2024.
Article source: http://feeds.nytimes.com/click.phdo?i=cfaa02011d85c34c39a476bb1b29717b
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