MercoPress. South Atlantic News Agency

Trichet forecasts Euro zone recovery at moderate path but with bumps

ECB President Jean Claude Trichet trying to defend Greece

The euro zone economy will continue to grow at a moderate pace but with bumps on its path to recovery, European Central Bank (ECB) President Jean-Claude Trichet said on Thursday.

Trichet made the statement during the press conference following the ECB earlier announcement that is was keeping its benchmark rate on hold at a record low of 1% for the ninth month running, as had been anticipated by markets.

”Euro area economic activity continued to expand around the turn of the year. Looking ahead, the (ECB) Governing Council expects the Euro area economy to grow at a moderate pace in 2010,“ Trichet told a news conference.

”The recovery is likely to be uneven and the outlook subject to uncertainty”.

Member countries' economies remain fragile and in spite of some signs of recovery in the major economies. With Euro zone inflation low (overall under the ECB target of 2%) and continuing fears about the health of certain members, it is seen to be too soon to move rates.

However it was Greece's public finances which absorbed most of Trichet’s attention during the press conference given widespread doubts about the achievability of its deficit reduction plans.

Greece's debt is far higher than its total national income and its budget deficit is expected to reach 12.5% of GDP, attracting the condemnation of the European Commission.

During the press conference Trichet cautiously backed Greece’s announced austerity measures saying the bank is “confident” Athens will implement “the appropriate measures” needed to put its budget in order.

Earlier on Thursday, the International Monetary Fund said it was ready to help Greece solve the debt crisis that has alarmed bond markets and shaken the credibility of the euro.

Dominique Strauss-Kahn said he did not believe Greece was heading for bankruptcy and expressed confidence in the country's economic plans.

Greece's problems have created a haven for speculators betting on the country's future fortunes. Greek government bond trading is more than 75% higher this year than last - and investors are demanding far higher interest rates than the official 1% set by the ECB.