Video screen grab of European Central Bank President Jean-Claude Trichet speaking at a press conference in Frnkfurt, July 08, 2010.

European Central Bank President Jean-Claude Trichet today reaffirmed support for European bank stress tests and said investors were too pessimistic on the common currency area's ability to deal with the sovereign debt crisis. However, he also said the region's economic recovery would likely be uneven.

"The latest economic data and survey-based indicators suggest that a strengthening in economic activity took place during the spring," Trichet said at a press conference in Frankfurt, after the ECB decided to keep its benchmark interest rate at 1%. He added in his opening statement: "The Governing Council expects real GDP to grow at a moderate and still uneven pace over time and across economies and sectors of the euro area. The ongoing recovery at the global level and its impact on the demand for euro area exports, together with the accommodative monetary policy stance and the measures adopted to restore the functioning of the financial system, should provide support to the euro area economy. However, the recovery in activity is expected to be dampened by the process of balance sheet adjustment in various sectors and labour market prospects."

On the banking sector, the ECB president said that the data up to May confirm that the size of banks’ overall balance sheets has increased since the turn of the year. He said the challenge remains for banks to expand the availability of credit to the non-financial sector when demand picks up. "Where necessary, to address this challenge, banks should retain earnings, turn to the market to strengthen further their capital bases or take full advantage of government support measures for recapitalisation. In this respect, we welcome the decision announced by the European Council to publish, with the consent of the banks involved, the individual results of the stress test exercise for banks in the European Union carried out by the Committee of European Banking Supervisors (CEBS) in cooperation with the ECB. Appropriate action will have to be taken where needed. Sound balance sheets, effective risk management and transparent, robust business models are key to strengthening banks’ resilience to shocks and to ensuring adequate access to finance, thereby laying the foundations for sustainable growth, job creation and financial stability," Trichet added.

The ECB president said rising inter-bank interest rates e.g. Euribor - - don’t reflect any plan by the ECB to tighten policy and signaled the bank will keep its benchmark rate at a record low in coming months.

“It would be a complete mistake to interpret what we observe in the market as a monetary policy signal,” said Trichet.

Marie Diron, Chief Economist for the Ernst & Young Eurozone Forecast (EEF) commented: Decision to leave rates unchanged was expected. EEF does not expect any rate increase before mid-2011 at the earliest.

Rate increases before 2011 unlikely (at the earliest)

"The ECB's decision to leave interest rates unchanged at 1% was expected. We do not expect any rate increase before 2011 at the earliest. And while the ECB has withdrawn a large amount of liquidity with the end of the one-year liquidity operation last week, we expect that it will continue to provide large amounts of shorter-term liquidity for the foreseeable future."

Risks to the Eurozone are on the downside

"Indeed, the risks to the Eurozone outlook are mainly on the downside. These risks relate first to the negative impact of the public deficit reduction measures on GDP growth. With all the Eurozone countries embarking on deficit reduction plans at the same time, no offset can be found in external markets and the negative growth impact of these measures will be magnified."

Uncertainty and tension in interbank market will remain

"A second source of risk relates to the banking sector. Eurozone banks have yet to write down potentially large losses and to reduce leverage. The publication of the stress tests is will not provide a realistic picture of the health of the banking sector as some of the assumptions retained are implausible. As a consequence, uncertainty and thereby tensions in the interbank market will remain. In this context, some institutions are likely to face serious funding difficulties. This risks hampering the availability of credit in the economy and thereby hindering growth."

ECB should loosen policy to support growth

"In this context, the ECB should be looking at ways to loosen policy to support growth. There is a danger that it will repeat the mistakes it made in 2008, tightening policy when the economy is weakening sharply."

ECB President Jean Claude Trichet said the EU's bank stress tests are being finalized and they are important. Thorsten Polleit from Barclays Capital has analysis:

Ryanair: Ryanair today called on the Dublin Airport Authority (DAA) to transfer its €1.2bn T2 (new terminal) to NAMA and to reverse the up to 40% increases in passenger charges at Dublin Airport in 2010, as Dublin Airport traffic continues to collapse. The airline also called on the Government to scrap its €10 tourist tax and follow the example of other EU countries, who have scrapped tourist taxes and returned to tourism growth.

Ryanair announced that its Dublin base this winter will be cut from 14 aircraft (2009) to 12 aircraft (in 2010) and Ryanair will operate less than 850 weekly flights from Dublin compared to 1,000 last winter. These aircraft will be switched to other EU countries which have reduced airport charges and scrapped Government tourist taxes, whereas Ireland continues to lose visitors by imposing tourist taxes and raising airport charges.

The DAA responded: "Ryanair’s own business model and the wider economic position has contributed to the airline’s decision to withdraw these services. These decisions are not related to passenger charges at Dublin Airport, which is one of Europe’s most competitively priced large airports.

Dublin’s current passenger charge for 2010 is 25% lower than the average €12.50 passenger charge levied in 2008 by comparable European airports such as Stansted, Gatwick, Brussels, Copenhagen, Lisbon, Zurich, Vienna, Munich, Oslo.

Ryanair’s public position does not stand up to scrutiny. If, as it claims, charges at Dublin Airport are one of the key reasons that it is reducing capacity this winter, why did those same charges not have any impact on the company’s desire to launch a new range of flights to sun destinations from Dublin this summer? Ryanair’s decisions are based on the market, not Dublin Airport’s highly competitive charges.

Ryanair claims that Dublin Airport’s €9.32 passenger charge is damaging business and yet Ryanair has just added a €10 surcharge, which is a 33% increase, onto checked luggage for July and August. The €10 family bag charge is on top of the €30 that Ryanair charges customers to check in a bag for a return flight. Since 2006, Ryanair has increased some of its ancillary charges by up to 700%.

While it is the case that passenger numbers at Dublin Airport have been affected by the economic downturn, were it not for the impact of the volcanic ash cloud, up to 19 million passengers would have used Dublin Airport this year.

The DAA notes Ryanair’s typically colourful and fatuous suggestion in relation to Terminal 2’s future. The terminal’s real future is only four months away and the DAA is fully confident that all Dublin Airport’s passengers are looking forward to using the new terminal when it opens in November. T2 is a key element of strategic national infrastructure that will be used by passengers for the next half century.

Ryanair also continues to lie, again not for the first time, about the cost of Terminal Two. The overall T2 project, which includes the new passenger terminal, the new boarding gate facility known as Pier E, a new energy centre, new aircraft parking stands and a major upgrade of Dublin Airport’s internal road network, is costing just over €600m."

Will the rise in the personal savings rate hurt the US economy? Joseph LaVorgna, of Deutsche Bank, and David Rosenberg, of Gluskin Sheff, share their views:

Banking Commission of Investigation: The Minister for Finance, Brian Lenihan T.D., today announced that Peter Nyberg, former Director General for Financial Services at the Finnish Ministry of Finance, has agreed lead the Commission of Investigation into the banking sector.

US initial weekly jobless claims: In the week ending July 3rd, the advance figure for seasonally adjusted initial claims was 454,000, a decrease of 21,000 from the previous week's revised figure of 475,000. The 4-week moving average was 466,000, a decrease of 1,250 from the previous week's revised average of 467,250.

The advance number for seasonally adjusted insured unemployment (continuing claims) during the week ending June 26th was 4,413,000, a decrease of 224,000 from the preceding week's revised level of 4,637,000. The 4-week moving average was 4,554,000, a decrease of 18,750 from the preceding week's revised average of 4,572,750.

States reported 4,147,551 persons claiming EUC (Emergency Unemployment Compensation) benefits for the week ending June 19, a decrease of 367,948 from the prior week. There were 2,586,598 claimants in the comparable week in 2009.

The US Congress has failed to agree on extension of the emergency measures, resulting in claimant numbers falling.

"We do not contemplate the possibility of a double-dip recession... It's not impossible, but it is not something that we think is likely," Jose Vinals, financial counselor and director of the Monetary and Capital Markets Department from the IMF, told CNBC Thursday. Amartya Sen, author of The Idea of Justice, joined the discussion.

US Markets

In New York Thursday, the Dow Jones added 48 points or 0.48% to 10,067.

The S&P 500 gained 0.32% and the Nasdaq is up 0.21%.

Live US Indices

The pan-European Dow Jones 600 has risen 0.70% Thursday.

The ISEQ has dipped 2.30%.

CRH which accounts for about 30% of the market cap, dipped 6.83% after issuing a trading statement for H1 2010 this morning. AIB is down 1.70% and BoI has gained 1.82%.

European Benchmarks

Irish Share Prices

Euribor Rates

Oil

On the New York Mercantile Exchange, oil for August delivery is trading at $75.16 up $1.09 from Wednesday's close. In London, Brent crude for August delivery is trading at $74.51 a barrel.

Currencies

The euro is trading at $1.2664 and at £0.8372.

For live currency updates, check the right-hand column of the Finfacts home page. The dollar traded at a record low $1.6038 per euro on July 15, 2008.