The European Central Bank has resisted market pressure to ride to the rescue of struggling euro zone countries, giving verbal support to Greece's tough savings plan but stopping short of any fresh action.
The ECB kept its key interest rate at a record low of 1% for the 12th month in a row at a meeting in Lisbon. It ignored calls for extra cash injections or the use of its 'nuclear option' - a purchase of Greek and possibly other countries' government bonds to halt the euro zone's debt crisis.
President Jean-Claude Trichet said the bank's governing council did not even discuss the prospect of buying government bonds at its Lisbon meeting, despite intense market speculation.
Financial markets showed their disappointment, with the euro plunging to a fresh 14-month low against the dollar.
But economists said it was possible the ECB would do a u-turn on bond purchases in the future if other countries were also hit by a lack of market confidence in their ability to service debt, noting that Trichet did not rule out such a move. Trichet said Spain and Portugal were not in the same boat as Greece.
On Monday, the ECB did an unprecedented u-turn by saying it would accept Greek debt as collateral for central bank loans even if the debt was downgraded to junk status, as the ratings agency Standard & Poor's has done. Mr Trichet said this decision was an acknowledgement of the extent of the country's economic recovery programme and dismissed out of hand the prospect of Greece defaulting on its debt.
The ECB president voiced cautious support today for more competition among international ratings agencies. 'I would say that in this domain as in many others the more you have competition perhaps the better,' Trichet said amid a growing debate over the influence of international ratings agencies on financial markets.
The ECB said it expected the euro zone economy to grow at a moderate pace this year, though growth could be uneven 'in an environment of high uncertainty'.
Trichet said rising global inflationary pressures were not yet threatening price stability in the euro zone, where domestic price pressures remain low. But he said commodity prices and areas seeing rapid growth were pushing up global inflation trends.
He also repeated that the Governing Council sees rates as appropriate, implying no change is to be expected in the near future.
