Liquidity measures may be scaled back next month as confidence in Eurozone recovery strengthens

Ireland’s fiscal strategy has been lauded as “very impressive” by the head of the European Central Bank, Jean-Claude Trichet.

While interest rates were kept on hold at the ECB’s February meeting, there were hints of a scaling back of liquidity measures next month. “Financial market conditions are much improved in recent months and the enhanced credit support that the ECB has been providing to the banking sector as part of its crisis management is no longer needed to the same extent,” said Simon Barry, chief economist at Ulster Bank following the ECB press conference.

There was also one change of language on growth in the ECB’s key introductory paragraph: the reference to “some of the factors supporting the growth in real GDP are of a temporary nature” was dropped this time around, a hint perhaps of some increase in confidence within the ECB regarding the foundations of the recovery.

The ECB’s overall assessment on the state of and outlook for the euro zone economy was also little changed. Euro area economic activity continued to expand around the turn in the year, it said. On Ireland, Trichet said: “the decisions taken by the Government to put the house in order have been very impressive; I take it that they were right”. Thus, for the second consecutive month Trichet took the opportunity to laud the Irish fiscal strategy, offering important external endorsement of the Government’s approach.