June 30 (Bloomberg) -- European Central Bank President Jean-Claude Trichet signaled officials remain determined to raise borrowing costs next week even as Greece struggles to stave off a default amid violent street protests.
“The monetary policy stance is still accommodative and risks to price stability are on the upside,” Trichet told lawmakers in Brussels today. “We are in a state of strong vigilance and we stand ready to act in a firm and timely manner to avoid that recent price developments give rise to broad-based inflationary pressures over the medium term.”
ECB officials are concerned that oil-driven inflation and faster economic growth will fuel wage demands. His comments come against the backdrop of Greek Prime Minister George Papandreou facing a second ballot in two days trying to pull his country back from the threat of a default and persuade investors he can implement a $112 billion-euro austerity plan.
The euro extended its advance against the dollar after Trichet’s comments, climbing as much as 0.6 percent to $1.4521. It traded at $1.4491 at 10:52 a.m. in Frankfurt. German two-year notes erased an advance, leaving the yield little changed at 1.56 percent.
The ECB’s governing council next convenes in Frankfurt on July 7. The central bank raised its benchmark interest rate by 25 basis points to 1.25 percent in April.
The cost of insuring Greek sovereign debt rose 33 basis points today to 1,978 basis points, according to CMA prices for credit-default swaps. That signals an 82 percent probability the nation will fail to meet its commitments within five years. The yield on the two-year Greek government bond was up 2 basis points today at 27.566 percent.
European officials are racing to prepare a second bailout package that could help Greece through 2014, while seeking participation from the region’s banks.
Trichet reiterated the ECB’s opposition to “all concepts that are not purely voluntary” and called for “the avoidance of credit events or selective default or default.”
He declined to comment on nations’ proposals as “at this stage we don’t yet have a position of governments we can examine.” The ECB remains “very alert. We follow what’s going on but I can’t give you a precise judgment,” Trichet said.
Fellow ECB officials Ewald Nowotny and Lorenzo Bini Smaghi said a French proposal for involving creditors in the Greek rescue was “interesting.”
--With assistance from Gabi Thesing and Matthew Brown in London and Jonathan Stearns in Brussels. Editors: Simone Meier, Fergal O’Brien
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