Markets have over-interpreted comments by incoming European Central Bank chief Mario Draghi on the bank's readiness to go on buying the bonds of troubled euro zone states, outgoing ECB President Jean-Claude Trichet said.
In a wide-ranging interview at the end of his eight-year term, Trichet welcomed what he saw as a commitment by euro zone governments at a summit last week to intervene in bond markets via the EFSF rescue fund to fight the bloc's debt crisis.
The ECB embarked on its own bond-buying program in May of last year but the plan has proven controversial, leading to the resignation of two leading German policymakers at the bank, and Trichet has appeared keen to withdraw from the policy.
Draghi seemed to take a different stance last week, appearing to signal that the ECB stood ready to go on buying bonds, intervening in debt markets to lower the borrowing costs of countries snared by the crisis.
Trichet said too much had been read into Draghi's comments.
I don't think that Mr Draghi said that, he said of the message understood by financial markets that the ECB would go on buying bonds.
I think there has been an over-interpretation, he added, looking out from the 32nd floor of the ECB's Frankfurt headquarters.
The confusion over Draghi's message highlights the importance of communicating ECB policy -- an area where Trichet has largely succeeded, delivering a clean, consistent message that has endeared him to financial markets.
A Reuters poll of euro money market dealers conducted after Draghi's comments showed a majority expect the ECB to carry on buying sovereign debt in secondary markets once the European Financial Stability Facility (EFSF) is empowered to do the same.
Speaking in Rome on Wednesday, as EU leaders were heading to Brussels for their summit, Draghi said: The Eurosystem (of euro zone central banks) is determined, with its non-conventional measures, to prevent malfunctioning in the money and financial markets creating an obstacle to monetary transmission.
Draghi used language similar to that employed by the ECB to explain the reactivation of the bond-buy program in August, when it said the plan was aimed at restoring a better transmission of our monetary policy decisions taking account of dysfunctional market segments.
Trichet declined to say what advice he would give Draghi, who takes over as ECB president on Tuesday, but stressed the collegiate nature of the bank's policymaking Governing Council.
This is a team ... it's a position of team leader, he said. What counts is he is inside -- it's not like a change of government. He was a member of the government he will preside over, if you take the metaphor.
Trichet believed governments had shown at last week's summit that they, rather than the ECB, were ready to lead the policy response to the euro zone's debt crisis.
We cannot substitute for governments, we will not substitute for governments, he said in an interview conducted on Friday for release on Monday.
In a bid to convince markets that they can prevent larger economies like Italy and Spain from being swept up by the crisis, euro zone leaders agreed at their summit to leverage up the EFSF to around 1.0 trillion euros ($1.4 trillion) from 440 billion.
The EFSF will be leveraged in two ways, either by offering insurance, or first-loss guarantees, to purchasers of euro zone debt in the primary market, or via a special purpose investment vehicle that will be set up in the coming weeks and which is aimed at attracting investment from countries such as China and Brazil. Both forms of leverage may be used.
What I draw from what has been decided at the last meeting is precisely that the governments have confirmed they are serious when they say they will step in themselves, that the EFSF will be leveraged and that they will embark in secondary market (bond) purchases and primary market purchases, Trichet said. That is something which is very important.
He said the ECB was looking at whether the prospect of private banks and insurers accepting 50 percent losses on their Greek debt holdings -- much more than previously agreed -- meant governments would have to offer increased collateral enhancements so that Greek banks can still borrow from the ECB.
Trichet leaves the bank at a time when the debt crisis risks tipping the world's leading economies into recession, and he said that central banks should not lean back and expect the crisis to subside.
There is very unfortunately ... some kind of confusion between the (euro) currency itself and financial stability in the euro area. The currency kept its value over time ... It's a very, very solid and credible currency.
Asked whether a beginning to the end of the crisis was approaching, he said: It is a global crisis and I would say that it is an ongoing process of structural adjustment at a global level. It calls for permanent attention, for credible alertness.