“If we were not credible in delivering price stability, it would be bad for growth and bad for employment,” said Jean-Claude Trichet, president of the European Central Bank, on the Thursday edition of FRANCE 24’s Talk of Paris.
Several hours prior to his appearance on the network, the ECB had announced its decision to retain its current prime interest rate – which determines the credit conditions for households and businesses in the Eurozone – at 4.25 per cent.
Rates were kept steady, Trichet said, because the ECB had “only one needle in our compass, which is the risk for price stability.”
The reason that controlling inflation and price stability were a priority for Europe, he said, was that “people are attached to price stability. It is essential for job creation.”
He added that Europe had “created more jobs since the creation of the euro” than had the US.
What this means for the US
The ECB’s decision raised objections from the US Federal Reserve, which drastically reduced its prime interest rate following the subprime mortgage crisis that flattened US markets at the beginning of 2008.
Trichet said that despite the risks that such a decision entailed – an overly strong euro and a slowing down of growth – “Everyone must face each economy in accordance with its own problems.”
“To say that we should imitate the US is naïve. We are not the US,” he added, dismissing rumours that Europe was planning a rescue package similar to that adopted last night by the US Senate.
Trichet pointed out that Europe was not a political federation, and that it had no single federal budget. Europe should therefore find solutions appropriate to Europe, he said.
Darkest before the dawn
Trichet did not seek to minimize the gravity of the crisis. “These events are probably the most serious since the second world war,” he said.
According to Trichet, the crisis “was triggered by generalized under-assessment of the quality of risks, and underpricing.” He says the ECB had tried to warn the world of events to come. “We were public on that. We said we had to be prepared for a correction.”
The impact of this correction, according to Trichet, was even more difficult to understand in real life terms. He foresaw a weak second and third trimester “before gradual recovery.”
Additionally, he said that other factors played a role in the crisis, such as the price of petrol. “If (oil) continues to drop, that will help growth,” he said.