Yesterday, following a meeting of the Governing Council of the European Central Bank (ECB), ECB President Jean-Claude Trichet held a press conference during which he announced that the ECB would hold key interest rates steady given modest growth prospects and little sign of inflation. The tone of the press conference was cautiously optimistic. Trichet noted that “the available data for the third quarter are better than expected,” but also said that the ECB expects the euro economy to grow at an “uneven pace, in an environment of uncertainty.”

With respect to fiscal policy, Trichet said that it is essential to return to sound public finances. “Given the exceptional fiscal deterioration over the past two years, there is an urgent need to implement credible medium-term consolidation strategies aimed at restoring fiscal sustainability and creating room for budgetary manoeuvre.”

Separately, the ECB also released yesterday the Eurosystem’s submission to the European Commission’s public consultation on a potential EU regime on short selling practices. The ECB generally supports regulatory authority to impose temporary bans on naked short selling of securities, including credit default swaps (CDS) on European sovereign debt, in “extreme circumstances whereby the broad market positioning negatively impacts on the issuer,” and endorsed greater transparency of short selling generally, “including the publication of data on settlement failures on government securities,” but expressed discomfort with permanent bans on naked short selling, cautioning that “the potential adverse effects of such a very restrictive measure should be carefully considered.”