Trichet must think the unthinkable – and act now

Crisis, what crisis? Jean-Claude Trichet, president of the European Central Bank, didn't actually utter those dreaded words today. But the tone of his press conference was upbeat, which amounts to the same thing in the eyes of jittery investors . The euro has fallen almost 5% against the dollar in a week, and 11% since the start of the year. The FTSE 100 has lost 6% of its value this week. Things are starting to look ugly. To be fair to Trichet, he was in a horrible position. If he had sounded alarmed, he would have been obliged to produce an anti-contagion measure. But one suggested mechanism of buying government bonds – AKA quantitative easing – would be a huge step for the ECB. Rolling out that weapon before the ink is dry on the Greek bailout would be admitting that the package is not enough to stop the rot spreading to Portugal or Spain. The problem with Trichet's "do nothing" stance, however, is that the ECB looks as if it is not even trying to get ahead of events. After six months of disastrous dithering over Greece, investors fairly expected lessons to have been learned. Instead, politicians maintain that a break-up of the eurozone is inconceivable and that Greece will not default. In the real world, hard money is being bet on both outcomes. It is impossible to predict how this will end. The basic problem seems simple: Greece is being offered emergency loans at an interest rate it cannot afford and is being told to adopt austerity measures that would consign it to years of contraction. In the absence of a devaluation, it is hard to see how Greece can make its economy competitive and grow its way out of the mess. The quick solution would be to offer Greece a better deal. But, even if the collateral damage to the balance sheets of banks holding Greek debt could be contained, Germany seems dead set against the idea. So where is the leadership going to come from? On theevidence, not the ECB.