Europe’s central bank chief hit out at spendthrift governments and “irresponsible” speculators on Saturday as investors battered the euro over fears of unsustainable debts.
With the euro having hit a four-year low against the US dollar last week, European Central Bank (ECB) President Jean-Claude Trichet insisted it was not the currency that has a credibility problem, but the finances of certain eurozone countries.
“It’s not the euro which is under threat, but the fiscal policies of certain countries which must be taken in hand,” he said in an interview published in the Frankfurter Allgemeine Zeitung daily.
Financial markets have been racked for days by worries over the possibility that some eurozone economies will no longer be in a position to repay debts and even that the eurozone itself could come apart because of the crisis, sending the euro to US$1.2144 on Wednesday — the lowest level since mid-April 2006.
FISCAL POLICIES
This decline helped prompt European finance ministers on Friday to agree to harden budget rules in another bid to reassure investors that the currency union would not burst apart.
“We need a change of values in the financial sector,” Trichet said. “In the financial sector in general, not just in the banks, certain behavior has developed that is greatly at odds with the basic values of our democratic societies.”
“Market movements are always a combination of investors’ moods and the influence of speculators, like the hedge funds,” Trichet said, renewing a call for greater regulation of banks and speculative funds.
POPE WEIGHS IN
Trichet’s comments were echoed by Pope Benedict XVI, who criticized governments for failing to take tough action to regulate banks and markets in the wake of the financial crisis.
Some heads of state “do not react with the appropriate decisions on the governance of finance when faced with renewed episodes of irresponsible speculation directed toward weaker countries,” the pope said.
“Politics needs to have primacy over finance and morality needs to guide every activity,” Benedict told a conference at the Vatican.
Europe has come under heavy criticism for its handling of the debt crisis, with many analysts pointing to indecision and discord in Europe’s biggest economies and at the very heart of European policymaking.
The head of the Organization of Economic Cooperation and Development sought to reassure markets on the euro.
“The euro is a great edifice, it will endure and even more countries will adopt the single currency,” Angel Gurria said in the online edition of the magazine Der Spiegel.
“The price declines are based on short-term turbulence. They do not justify doubts about the existence of the currency,” he said.
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