While the ECB might in theory want to hike rates to have a modestly positive real rate with inflation running north of 1%, supported by firming import prices/weaker euro, it also knows that driving up the cost of funds weakens the credit worthiness of all the member nations. (see the last sentence highlighted in yellow)

And, as the IMF gets all of its euros from the euro zone member nations, all the Greek assistance, including the IMF funding, ultimately comes from the euro nations themselves, reducing general credit worthiness.

Highlights:

German Inflation Accelerated to Fastest in 16 Months in March
Trichet Says Greece Aid Plan Is ‘Positive’ Solution
Trichet’s Voice Is Drowned Out in Rescue Effort
German Economy to Grow 1.5% in 2010, 2011, BDB Bank Lobby Says
Nowotny Says ECB Didn’t Want Greek Fate in Rating Firm’s Hands
ECB sees worst-hit sectors make fast repairs
Merkel ‘Buckled’ on Greek Aid Terms, Lawmakers Say
French Parliament Can Clear Greek Aid in 1 Week, Lagarde Says
French Consumer Prices Gain 1.7%, Driven by Higher Energy Costs
ECB’s Ordonez Says EU Support for Greece Is Not a Subsidy
Italy GDP Lost 6.5% Due to Financial Crisis, Central Bank Says

Greece Aid Fails to Cut Downgrade Risk, Moody’s Says

By Mathew Brown

April 13 (Bloomberg) — Greece’s 45 billion-euro ($61 billion) international aid pledge, designed to help it tackle its debt crisis, has failed to remove the likelihood of a credit downgrade, Moody’s Investors Service said. The Mediterranean nation faces “significant execution risk,” in implementing a plan to reduce its budget deficit, Sarah Carlson, the Moody’s lead analyst for Greece, said in a telephone interview yesterday. Support from the EU was assumed before the April 11 agreement, she said. “More specificity of the nature of the EU assistance if it were necessary is helpful, if nothing else, for calming down the markets,” Carlson said. “The amount of money that a government spends on interest payments relative to the revenues that it takes in is a very important variable that we look at, and one of the things that affects that is the cost of borrowing.”

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