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ECB's Trichet convinced Greece will take action

ECB President Trichet speaks during a debate on the current situation in the markets at the European Parliament's Economic and Monetary Affa
ECB President Trichet speaks during a debate on the current situation in the markets at the European Parliament's Economic and Monetary Affa

By Daniel Flynn and Vicky Buffery

PARIS (Reuters) - ECB President Jean-Claude Trichet said on Monday he was convinced the Greek government would take the decisions required to keep its EU-IMF bailout on track, but it had very little time to do so.

Trichet also admitted there were differences between the European Central Bank experts and International Monetary Fund (IMF) on the recapitalization needs of European banks, after IMF officials estimated a capital shortfall of 200 billion euros.

Officials from the ECB, IMF and European Union interrupted talks on a new aid tranche for Greece on Friday due to disagreements over why Athens had fallen behind schedule in cutting its deficit.

Trichet said the troika officials, who are due back to Athens in mid-September, had given Prime Minister George Papandreou's government the time needed to take decisions to keep its EU-IMF bailout program alive.

"Time is obviously extremely short for Greek government to take the decisions required by the current circumstances," Trichet said during a long interview on LCI television.

"The Greek government understands the message and will do what is needed to achieve the objectives that have been set."

Greece, which sees the deficit at about 8.1 percent of GDP, blames the fiscal slippage on a deeper-than-expected recession.

Greek officials said on Monday they were confident they would clinch the next 8 billion euro installment of EU-IMF funds, due in mid-September. Athens faces no immediate danger of bankruptcy though it must repay about 10 billion euros of debt, but any delay to the aid could jolt the financial markets.

"We are just asking them to put into practice what has been agreed up, nothing more," Trichet said. "They were spending more than they were earning and that couldn't go on ... There is still the time to return to a normal situation, (but) the measures still need to be adopted."

Turning to the health of Europe's banks, he said that ECB experts disagreed with the IMF's methodology for assessing their capital requirements.

Asked if banks' funding needs were in line with the IMF's reported 200 billion euro assessment, Trichet replied: "There is a very important disagreement on the methods for calculating the capital needs...I am convinced that the final IMF figure will not be that."

Trichet also repeated a call, which he made earlier on Monday alongside his future replacement Mario Draghi, the governor of the Bank of Italy, for euro zone states to quickly implement a decision to strengthen the region's EFSF bailout fund, agreed in July.

(Reporting by Daniel Flynn and Vicky Buffery; editing by Carol Bishopric)

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