Spain: ECB chief sowed market confusion

Spain hit out Friday at European Central Bank chief Jean-Claude Trichet, saying he sowed confusion in an "unusually long" news conference during which markets plummeted. Stock and debt markets in the eurozone lurched lower during Trichet's news conference Thursday after a meeting of the ECB's board of governors. Some analysts blamed his failure to clearly back Spanish and Italian debt, along with signs that the bank was buying Irish and Portuguese bonds in the market but not touching hard-hit Italian and Spanish bonds. "I have to admit that was not the best news conference I have followed by Mr. Trichet, that there was a certain confusion," Finance Minister Elena Salgado told national radio RNE. "During that news conference, which was very long, unusually long, there emerged news that it (the ECB) was buying Ireland and Portugal's bonds, two countries that already have financial assistance programmes, so it was unexpected that such intervention would be necessary," she added. "It caused a certain confusion in the markets." The turmoil was compounded by negative US business news, she said, leading to broader market weakness and investor worries. Spanish stocks and bonds finally strengthened Friday on rumours that the ECB had expanded its programme to include Spanish and Italian bonds, traders and analysts said. The Spanish finance minister had only praise for a news conference Friday by Economic Affairs Commissioner Olli Rehn, who said a wide-ranging contingency plan to defend the euro, agreed at a special European summit July 21, would be ready "in weeks, not months." The market unrest was unjustified "on the grounds of economic fundamentals," Rehn told a news conference. "It is not justified for Italy. It is not justified for Spain." Salgado said the EU economic affairs commissioner "knows that our government is absolutely determined to deepen the reforms, to implement them and to continue with our commitments." The finance minister took in stride a Bank of Spain report Friday saying growth slipped to 0.2 percent in the second quarter from 0.3 percent in the first quarter of the year. Salgado predicted economic growth would pick up in the third quarter of 2011 and said the government would not be changing its forecast for an expansion of 1.3 percent over the year as a whole. "We have not changed our forecast for the whole of the year because we think that these debt market tensions, which are strong at the moment, will be temporary, will last a short time." The Bank of Spain, which forecasts Spanish economic growth of 0.8 percent in 2011, warned in its report that sovereign debt market tensions could threaten the economic recovery in Spain.