Renewed fears of a Greek debt default will overshadow the meeting
The European Central Bank will keep its key interest rate at 1.25 % this week, analysts say, but might signal a further hike amid climbing prices in the 17-nation eurozone. Renewed fears of a Greek debt default will
overshadow the meeting of ECB policymakers in Finland even though European Union (EU) leaders still reject speculation that financial markets now all but take for granted.
Economists expect the ECB governing council, gathering Thursday in Helsinki for one of two annual meetings away from the bank\'s headquarters in Frankfurt, to hint at more rate hikes, with the first possibly as soon as June.
That could be signalled in an ECB statement if the council says it will maintain \"strong vigilance\" with respect to price pressures, a clear sign higher rates are on the way.
Away from monetary policy, questions about who will become the next ECB president later this year appear to have been all but settled with an expression of French support for Italian central bank governor Mario Draghi.
If officially named by EU leaders in June, Draghi will face the task of leading 330 million people out of a debt crisis that has snared Greece, Ireland and Portugal and also threatened Spain.
He would be the third ECB president after the late Wim Duisenberg of the Netherlands and Jean-Claude Trichet of France, who steps down in October.
Germany, which has yet to give Draghi its widely-tipped backing, expects the next ECB head to reinforce fiscal discipline and unwind unorthodox measures like public debt purchases that were taken to protect Greece from bankruptcy.
Most economists assume Athens will still need to restructure its debt, possibly by establishing a longer time-frame for reimbursement or by declaring that not all would be reimbursed, though the ECB and EU leaders still insist otherwise.
Jean-Claude Juncker, head of the Eurogroup of eurozone finance ministers, said Thursday that restructuring Athens\' debts was \"not an option\" because it would cause enormous problems.
Banks in France and Germany are particularly exposed to potential losses if Greece does not repay its debts, but politicians are also aware the public is getting tired of footing the bailout bill.
Meanwhile, climbing inflation has dented eurozone consumer confidence and resulted last month in the first ECB rate hike since July 2008.
Inflation stood at 2.8 % in April according to an initial EU estimate, well above the ECB target of just below 2.0 %, as higher energy and other commodity prices seep through to the wider economy. Meanwhile unemployment remained below 10 % for the second consecutive month.
Commenting on the bank\'s benchmark lending rate, UniCredit economist Marco Valli said that \"absent any meaningful constraint stemming from financial markets turbulence, in the ECB\'s mind, 2.0 % is probably a more plausible year-end target than 1.75 %.\"
In London, the Bank of England is expected to keep its main rate at a record low of 0.50 % on Thursday owing to a weak economic outlook, while the US Federal Reserve should stick with its record low near zero for now.
Fed chairman Ben Bernanke signalled last week however that asset purchases by the US central bank would end in June, marking the beginning of the end of its long round of monetary easing.
That has seen the dollar decline in value to around 1.48 to the euro, which is the \"last thing that the deeply uncompetitive peripheral economies need,\" Jonathan Loynes at Capital Economics said in reference to Greece, Ireland and Portugal.
Austerity measures forced on Dublin and Lisbon to correct their finances have toppled governments there, as the eurozone struggles more generally with a fragile banking sector, sluggish growth and weak property markets.