Mr. Trichet rejected speculation in financial markets that Greece will have to restructure its government debt, saying that scenario "is not in the cards" and that Athens must stick to its deficit-reduction targets.
The euro tumbled and German bonds rallied on Mr. Trichet's inflation comments, which suggest the next interest-rate increase won't occur before July. Higher interest rates attract capital from global investors seeking a safe return, a factor in the euro's steady ascent this year.
The Bank of England kept its key rate at a record low 0.5% Thursday. The Federal Reserve isn't expected to raise interest rates, currently near zero, for many months.
"We continue to see upward pressure on overall inflation," Mr. Trichet told reporters at a conference center overlooking the harbor in Helsinki, where the ECB held one of its twice-yearly meetings away from its Frankfurt headquarters.
The ECB voted unanimously to keep its main policy rate at 1.25%, as expected. Last month, the ECB raised interest rates for the first time in nearly three years. Many analysts expect two or three more rate increases by the end of the year.
Despite the inflation warnings, Mr. Trichet didn't say "strong vigilance" was warranted, a phrase used in the past to signal imminent interest-rate increases.
"They're being a bit cautious" because signaling another rate increase so soon after the first one "would make it hard to rein in market expectations" of an aggressive cycle, said Nick Matthews, economist at Royal Bank of Scotland. Mr. Matthews, who before Thursday's meeting expected a June increase, now doesn't expect one until July.
One month's difference doesn't matter much by itself, economists said. Still, Mr. Trichet's remarks have an important signaling effect that the ECB isn't in a rush to return rates to more normal levels.
Last month, inflation across the euro bloc surged to a 2½-year high of 2.8%, well above the ECB's target of just under 2%. Many economists expect it to breach 3% by the summer.
"There's a question about Trichet's resolve to fight inflation," said Melvyn Krauss, senior fellow at the Hoover Institution at Stanford University.
Jörg Krämer, chief economist at Commerzbank, said the ailing periphery of Greece, Ireland and Portugal—which combined account for just 6% of euro-zone output--is keeping the ECB from tightening policy as aggressively as the inflation outlook would suggest. "It plays a role when it comes to the speed" of rate increases, he said.
Mr. Trichet insists he isn't behind the curve in combating price pressures, citing a solid anchoring of inflation expectations and the fact that the ECB was the first major central bank out of the gate with higher interest rates.
"Being the first big central bank in the world to raise interest rates, I don't think from that standpoint we have any credibility problem," Mr. Trichet said.
He played down Europe's north-south economic divide, saying the periphery's struggles had no influence on Thursday's decision. The ECB sets policy for the average of its 17 member states, Mr. Trichet said, and risks to the economic outlook are "broadly balanced."
Thursday's ECB meeting came just days after Portugal signed a €78 billion ($116 billion) bailout with the European Union and the International Monetary Fund. Like Greece and Ireland, which were rescued from default last year, Portugal faces years of recession and stagnation as it revamps a moribund economy and enacts growth-draining fiscal austerity measures at the same time.
The EU-IMF package "has the necessary elements to bring about the stabilization of the Portuguese economy," Mr. Trichet said.
Higher interest rates make it much harder for Portugal and others along the periphery to recover, many analysts say. Mortgages and other loans in Southern Europe and Ireland are closely linked to short-term interest rates. When those go up, financing costs do as well for consumers and businesses.The euro, which despite Thursday's slip has risen sharply this year, is an added burden because it makes goods and services more expensive in global markets. Ireland is heavily dependent on exports, and Southern European countries such as Portugal and Greece compete heavily with low-cost emerging markets in products that require a lot of labor.
In contrast, Germany, the Netherlands and Finland can better withstand a high exchange rate, as their products tend to be capital-intensive machinery that is less tied to price. Mr. Trichet didn't comment on exchange-rate levels, other than to cite comments by top U.S. officials advocating a strong U.S. dollar.
For Germany and other nations in Northern Europe, such as Finland, that have recovered from the global recession, the ECB isn't moving fast enough, some analysts say. German inflation is 2.6%, a two-year high. Its unemployment rate is at a two-decade low, giving workers added power to press for higher wages.
"Germans have this inflation problem. They have to fork over the dough for bailouts. You'd think the ECB would do something for Germany," said the Hoover Institution's Mr. Krauss.
The choice of Helsinki for Thursday's meeting, though made months ago, carries symbolic importance. Rising antibailout sentiment propelled the nationalist True Finn party to a strong showing in recent elections here, raising doubts as to whether the 17-member euro bloc will stay unified in signing off on any more loans to peripheral countries.
Mr. Trichet was flanked at Thursday's press conference by Bank of Finland Governor Erkki Liikanen and Vítor Constâncio, a former Bank of Portugal governor who is now the ECB's vice president. Messrs. Liikanen and Constâncio declined to give their thoughts on Portugal's debt woes or on Finland's growing resistance to providing assistance.
If prosperous countries balk at future rescues, it would place an added burden on the ECB to hold the euro bloc together via its crisis facilities.
[ online.Wsj.com ]
