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ECB loans extension cheers market

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Trichet: We are learning the hard way
  • ECB chief defends handling of eurozone crisis as he cheered markets seeking decisive action.
  • Jean-Claude Trichet said he was more optimistic than he was earlier in the year
  • ECB leaves rates at 1 percent and says banks can continue to draw on emergency funds
  • Trichet said ECB would buy up government bonds on open market

London, England (CNN) -- The president of the Europe's central bank on Thursday defended his handling of the eurozone debt crisis as he cheered investors looking for decisive action.

Jean-Claude Trichet said that while there was a long way to go to fully stabilize the 27-nation eurozone, he was more optimistic than he was earlier in the year.

Speaking to CNN's Quest Means Business a week after Ireland was forced to accept an $111 billion bailout from the European Union, Trichet said: "All advanced economies have big challenges in the present time, after the worst crisis in our advanced economies since World War II.

"And we all have to work hard to say just one word, of the real economy in Europe. Let me say that I could make public today the fact that we were a little bit more optimistic on the real economic growth now than we were three months ago."

Earlier on Thursday the ECB left interest rates at a record low of 1 percent and said banks would continue to be able to draw on emergency funds well into next year -- instead of being cut off cold.

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Trichet said the ECB would buy up government bonds on the open market to ease pressure on the neediest countries such as Ireland, Portugal, Spain and Greece. But he gave no indication it would increase its purchases, as the markets had hoped.

Asked why financial instability continued following bailouts for both Greece and Ireland's, Trichet said it was a lengthy process to restore confidence after such a crisis. "When you embark into a tough program, you have to demonstrate progressively that you're implementing it. And that is a process which is, again, ongoing.

"We have called ourselves for a quantum leap in terms of governance of the fiscal policies, on the one hand, and of the macro policies, on the other hand -- all economic policies. And this is a work in progress. We are shipping messages to the governments, to the (European) parliament, to the commission, that we have to realize this quantum leap. It is necessary."

News that the ECB had extended its emergency load program and would continue to buy eurozone bonds helped European markets to rally slightly. Stocks gained for a second day, closing at two-week highs. London's FTSE-100 and Paris's CAC-40 both closed up more than 2 percent.

But analysts said the ECB's move represented a compromise. IHS Global Insight's Howard Archer said "the ECB's extension of its emergency liquidity measures will help matters but it is really the minimum of what was expected or hoped for by the markets."

Marie Diron, senior economist at Ernst & Young, warned that more difficult days lay ahead. "There is a risk of a full-blown crisis whereby contagion affects all peripheral countries and possibly moves to some core countries," she told Agence France-Presse.