European Central Bank (ECB) chief Jean-Claude Trichet said in an interview with the Wall Street Journal on Sunday that Europe doesn’t need more stimulus spending, but that the ECB could lower its interest rate further to free up credit.
In support of European governments resisting US pressures to boost their stimulus packages, which are about half of the US’ US$787 billion plan, Trichet said all sides should “now, as efficiently and rapidly as possible, do what has been decided.”
“Nothing will really work until the financial sector is back on track and ready to lend on a sustainable basis. I would say exactly the same with the budget,” Trichet said in his interview published online Sunday in the Wall Street Journal.
“Decisions have been taken; they are very important. Let’s do it! Quick implementation, quick disbursement is what is needed,” the ECB president said.
The US and Europe are at loggerheads on whether to announce a fresh stimulus package at the upcoming G20 summit meeting in London on April 2. Washington favors the move, and European countries like France and Germany, oppose it.
Trichet said that if governments fall too deeply in debt, it could trigger a hike in long-term interest rates, which would sap public and business confidence.
“To be efficient in rebuilding confidence, you have to demonstrate that you are doing, immediately and audaciously, what is necessary,” he said.
“But at the same time, you have also to reassure your own people that you have an exit strategy,” he said.
The Wall Street Journal said Trichet “strongly suggested” the ECB would not buy government bonds to free up credit as the US Federal Reserve and the Bank of England have done.
He said the ECB was wary of a “blending of responsibilities” between the banks and the euro zone’s 16 different national finance ministries.
However, Trichet reaffirmed that the ECB could take its key interest rate below the banks already historic low of 1.5 percent to stimulate the credit market.
The US and Britain have lowered their interest rates to near zero.
Trichet said comparing policy rates was misguided.
“It is not a race,” he said.
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