Sunday

25th Feb 2024

Trichet highlights inflation risks for eurozone

  • Uncertainty about the prospects for growth in the eurozone remains "unusually high" (Photo: European Community)

European Central Bank (ECB) chief Jean-Claude Trichet on Wednesday (26 March) indicated he does not see the need to lower interest rates, referring to ongoing inflationary pressures posed by the risk of further rises in energy and food prices.

He said that the "current monetary policy stance" which sees interest rates at their highest in six years will help curb inflation in the 15-member eurozone.

Read and decide

Join EUobserver today

Get the EU news that really matters

Instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

Mr Trichet noted that: "Risks to the medium-term outlook for inflation are on the upside. These risks include further rises in oil and agricultural prices."

The French banker also sounded a more pessimistic note on inflation than earlier this month by saying that it is expected to remain significantly above 2 percent - the ECB's ceiling - in the eurozone for most of 2008. At the moment, eurozone inflation is at a record 3.3 percent.

"The period of relatively high inflation rates will be more protracted than previously expected," he said before the European Parliament's economic and monetary affairs committee.

The ECB chief reiterated that the bank remains "inflexibly attached" to its goal of maintaining price stability. His comments come despite complaints by France among others that its exporters are being harmed by the high rate of the euro against the dollar.

The ECB has left its main rate unchanged at 4 percent since the credit market crunch in August, while the US Federal Reserve has cut its main rate six times.

Mr Trichet said it "corresponds to what we believe is necessary to achieve price stability in the medium term". He defined this as 18 to 24 months.

"If we had reduced interest rates, the moral hazard is that we would have been asking citizens to bail out the banks."

In spite of the uncertainty in global financial markets, Mr Trichet repeated his view that the fundamentals of the European economy are "sound" and that it is not suffering from major imbalances.

But he noted that while "ongoing growth" in the European economy is expected to continue, "uncertainty (…) remains unusually high."

"Downside risks relate to a potentially broader than currently expected impact of financial market developments."

The ECB chief also said he did not believe global financial turmoil, triggered by the collapse last summer of the US subprime market, had reached its nadir.

Referring to it as an "ongoing process of very significant market correction" he added "I would not say that the worst is behind us."

Mr Trichet called for a "change of culture" in the banking system to make it easier to prevent such crises in the future. "I would sum up this cultural change with two words: transparency and anti-cyclicity."

More openness would make sure all market players have a clear picture of what is happening while financial rules that tend to amplify booms and busts need to be re-examined, he said, noting that if financial institutions do not make "convincing" changes then "perhaps it is necessary to engage in regulation."

EU's €723bn Covid recovery fund saw growth, but doubts remain

The €723bn Covid-19 recovery fund, launched three years ago, has been a success, according to a mid-term internal review — but less effective than initially predicted. And according to one NGO, the commission painted an "overly positive picture".

France's Le Maire 'goes German' with austerity budget

The French government announced €10bn in further spending cuts. However, defence spending is set to increase significantly, up to €413bn from €295bn, while €400m was cut from a fund meant for renovating schools, carpooling infrastructure, and other environmental projects.

Online platforms must be liable for payment scams, say MEPs

MEPs have agreed on new rules to level the playing field between banks and non-banks, and to make payments more user-friendly, cheaper and safer — including measures to make online platforms liable for payment fraud that occurs through their services.

Opinion

After two years of war, time to hit Putin's LNG exports

Two years of tragedies, with well over 100,000 Russian war crimes now registered, underscore the urgent need to stop international LNG investments in Russia that continue to fund Vladimir Putin's war chest.

Opinion

Blackmailing the Global South on EU carbon border tax won't work

According to the European Commission, CBAM is supposed to prevent "carbon leakage". In other words, it seeks to prevent European industries relocating to jurisdictions with less stringent environmental policies, while also incentivising carbon pricing and industrial decarbonisation abroad.

Latest News

  1. EU rewards Tusk's Poland on rule of law with €137bn
  2. UK-EU relations defrosting ahead of near-certain Labour win
  3. EU paid Russia €420-per-capita for fossil fuels since war began
  4. After two years of war, time to hit Putin's LNG exports
  5. Creating the conditions for just peace in Ukraine
  6. Energy and minerals disputes overshadow new EU-ACP pact
  7. Germany speeds up Georgia and Morocco asylum returns
  8. How Amazon lobbyists could be banned from EU Parliament

Stakeholders' Highlights

  1. Nordic Council of MinistersJoin the Nordic Food Systems Takeover at COP28
  2. Nordic Council of MinistersHow women and men are affected differently by climate policy
  3. Nordic Council of MinistersArtist Jessie Kleemann at Nordic pavilion during UN climate summit COP28
  4. Nordic Council of MinistersCOP28: Gathering Nordic and global experts to put food and health on the agenda
  5. Friedrich Naumann FoundationPoems of Liberty – Call for Submission “Human Rights in Inhume War”: 250€ honorary fee for selected poems
  6. World BankWorld Bank report: How to create a future where the rewards of technology benefit all levels of society?

Join EUobserver

EU news that matters

Join us