Friday

3rd Feb 2023

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

Become an expert on Europe

Get 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."

Hawkish ECB rate-rise 'puts energy transition at risk'

The European Central Bank raised interest rates by another 0.5 percent to a 14-year high, and expects to hike rates by another half percent in March. But what does that mean for the green transition?

Polish backpedal on windfarms put EU funds at risk

Draft legislation in Poland aimed at relaxing some of Europe's strictest laws surrounding onshore wind-turbines has been derailed by a surprise last minute amendment, which could put Poland back on a collision course with the EU.

Opinion

More money, more problems in EU answer to US green subsidies

Industrial energy-intense sectors, outside Germany and France, will not move to the US. They will go bust, as they cannot compete in a fragmented single market. So to save industry in two member states, we will kill the rest?

Latest News

  1. How the centre-right can take on hard-right and win big in 2024
  2. Top EU officials show Ukraine solidarity on risky trip
  3. MEPs launch anonymous drop-box for shady lobbying secrets
  4. Hawkish ECB rate-rise 'puts energy transition at risk'
  5. MEPs push for greater powers for workers' councils
  6. How Pavel won big as new Czech president — and why it matters
  7. French official to take on Islamophobia in EU
  8. EU green industry plan could spark 'dangerous subsidy race'

Stakeholders' Highlights

  1. Party of the European LeftJOB ALERT - Seeking a Communications Manager (FT) for our Brussels office!
  2. European Parliamentary Forum for Sexual & Reproductive Rights (EPF)Launch of the EPF Contraception Policy Atlas Europe 2023. 8th February. Register now.
  3. Europan Patent OfficeHydrogen patents for a clean energy future: A global trend analysis of innovation along hydrogen value chains
  4. Forum EuropeConnecting the World from the Skies calls for global cooperation in NTN rollout
  5. EFBWWCouncil issues disappointing position ignoring the threats posed by asbestos
  6. Nordic Council of MinistersLarge Nordic youth delegation at COP15 biodiversity summit in Montreal

Join EUobserver

Support quality EU news

Join us