European Central Bank President Jean-Claude Trichet said on Wednesday he expected markets to reward Greece for its fiscal consolidation measures.

Trichet also said economic growth in the euro zone would be modestly positive this year and pick up speed in 2011.

I expect ... that the credibility of these measures will be progressively recognized by all market participants and observers, Trichet said in a joint news conference with the Swedish Finance Minister Anders Borg, referring to Greek deficit-cutting plans.

He called the Greek government measures courageous.

Greece is struggling to handle a 300 billion euro debt pile and has agreed austerity measures to reduce its deficit to 8.7 percent of gross domestic product this year from 12.7 percent in 2009.

Confidence in Greece as a borrower has been shaken with the premium investors demand to hold Greek government paper instead of German benchmark bunds rising to 346 basis points on Wednesday.

Greek borrowing costs have not come down despite a deal last week to aid the country if it were unable to borrow on the markets.

Greece would qualify for assistance only if it were unable to borrow on the markets, and a unanimous euro-zone decision would be required to trigger a rescue.

Euro zone states would provide the majority, some said two-thirds, of help in coordinated bilateral loans, on strict conditions proposed by the European Commission and the European Central Bank, while the International Monetary Fund would provide the rest.

Trichet said the deal was helpful.

I repeat only what I already said. I said it was a framework I considered was positive and I approved it.

Trichet also said the IMF had a role to play in a potential rescue, calling the use of its expertise welcome.

But Trichet said euro-zone countries should use peer pressure to keep fiscal deficits at bay along the EU's Stability and Growth Pact, which spells out maximum public sector deficits at 3 percent of the gross domestic product.

Turning to euro-zone economy as a whole, the 16-country bloc central bank's head said 2010 growth should be positive and would accelerate next year.

For this year, at the level of the euro area as a whole, modest growth, of course positive growth, but modest growth, and I would say for next year growth which would be higher than this year, Trichet said, but added the recovery depended on confidence and everyone should still be cautious.

(Reporting by Simon Johnson, Adam Cox and Nick Vinocur, writing by Sakari Suoninen, editing by Mike Peacock)

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