MercoPress. South Atlantic News Agency

A Greek “headache” for the European Central Bank and interest rates

“Peripheral” nations budget deficits haunt ECB president Jean Claude Trichet

The Euro-zone is facing one of its most serious internal crises ever as European Central Bank (ECB) governors meet on Thursday, with fiscal problems in Greece and other members of the bloc pushing interest rate issues to the background.

Since markets are certain the bank's main rate will remain unchanged at a record low of 1%, ”arguably, the most eagerly awaited aspect of the January press conference is what ECB president (Jean-Claude) Trichet says about Greece,“ Deutsche Bank economist Mark Wall said.

Athens is not the only Euro-zone capital causing alarm in Frankfurt. The credit ratings agency Moody's has warned that Portugal's economy also faced a ”slow death” unless it becomes more competitive and officials collected more tax revenues.

International Monetary Fund (IMF) experts have begun a week-long mission at Greece's invitation to mentor the government on how to plug a huge hole in its public finances.

Although the 16-nation Euro-zone is no longer in recession, the financial crisis exacerbated fiscal disparities among its members, presenting the ECB with a patchwork quilt of problems that is fraying at the seams.

Germany should manage to hammer its bloated deficit back into shape while “peripheral” members like Greece, Ireland, Portugal and Spain must “step up budget consolidation far more than the core countries,” Commerzbank chief economist Joerg Kraemer warned.

The situation is such that Wall expected Trichet to be asked “whether and under what conditions Greece could be put under pressure to voluntarily choose to exit” the Euro-zone.

An ECB paper published last month concluded there was little chance of a member leaving or being forced out, but the fact the bank produced such a document at all raised eyebrows in financial markets.

Greek Prime Minister George Papandreou said Wednesday there was “no way” the country would abandon the Euro or seek IMF aid.

“There is no way we will leave the Euro or seek recourse to the IMF. We do not need to,” Papandreou told a nationally televised news conference.

The Greek public deficit rose to 12.7% of GDP, far above the 3% ceiling permitted to countries that share the single currency.

Greek debt was estimated at 113% of the nation's GDP and is forecasted to climb to more than double the European Union limit of 60%.