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ECB rejects calls to reintroduce liquidity program

The European Central Bank (ECB) has today rejected calls to reintroduce its liquidity program which had proved very successful in helping European companies raise funding on the money markets. In doing so Jean-Claude Trichet also reiterated his opinion that investors are becoming too pessimistic about the European economy and there is no need to question the prospects for the European economy as a whole.

Even though the ECB is relatively upbeat on the European economy, it looks as though it may well target specific funding at troubled economies such as Greece, Portugal and any others which experience financial difficulties in the months ahead. However, after purchasing €60 billion of Greek government debt in the marketplace and also assisting the Portuguese authorities, the rate of "investment" by the ECB has reduced from around €16 billion a week to €4 billion. Investors will be keeping a very close eye on this particular figure because if it does increase in the short term then this could give a very negative and damaging signal to investment markets.

In many ways the ECB is in a no-win situation, if it invests heavily in the government debt of countries such as Greece and Portugal this gives a disappointing signal to the investment markets, yet if the ECB sits on the sidelines and does nothing it is accused of ignoring potential problems which would again worry investors.

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