Jean Claude Trichet has been accused of over-conservative policies at the European Central bank, and erring on the side of caution when different polices could have spurred growth. He has countered by saying it is unfair to ask a safe pair of hands and supposedly Europe’s gaurdian against inflation to suddenly turn risk-taker, but as he stresses in this exclusive interview with euronews, the ECB is not as boring as you might think.euronews: Inflexible is the cry of some of the European Central Bank’s critics, and indeed on Thursday the ECB did nothing about its one percent base rate, leaving it unchanged despite calls from the OECD to loosen things up. So why this decision, and what would have been the risk of a lower rate? JCT: “As you know, we’ve taken a series of highly unconventional decisions. We’ve just embarked on a year-long plan to inject 440 billion euros into the eurozone’s commercial banking sector. Never has a central bank provided such liquidity to the banks, so I would say we have been audacious, very audacious. At the same time I repeated today what I said last month, and two months ago, and that is that we have not decided the current rate will be the lowest we go, as various new data have to be analysed all the time. Things change, but today interest rates are set at the appropriate level.” euronews: Some say the ECB isn’t supporting the eurozone economy enough and underestimates the risk of deflation. For the first time we saw prices fall in the eurozone in June. You’ve said yourself the risk is limited. Do you still hold that opinion today? JCT: “Yes. We are able to solidly forecast inflation risks. This protects us against the risk of inflation, and also protects us against the risk of deflation, or in other worlds persistent price collapse over a long period that triggers further economic negatives. In fact we have a reliable forecast figure of around 1.9 percent over the medium and long term. That is entirely coherent with our idea of stable prices, less than two percent, but close to it. Once again, I stress it would be a mistake to think policies conducted by the Governors of the ECB are timid ones. In fact, we were the first to take action in a number of sectors. No other central bank in the world has provided its banks with 440 billion euros.” euronews: Do you trust the banks? Lending 440 billion euros at one percent interest is a huge gift to banks that are supposed to pass that cheap money on to consumers and business. But according to some experts this isn’t happening, and there’s no guarantee the banks won’t lend at higher rates. JCT: “We are demanding the banks extend this credit across their client bases, and make a similar effort to the considerable one we are making. We are also asking them to restore their balance sheets to health, and take advantage of a range of options different countries are offering, for recapitalisation for example, and not to hesitate to go to the market to raise capital or improve their finances. All these steps are needed for the financial sector to work as efficiently as possible.” euronews: Everyone has a forecast about when growth will return. The most optimistic say the States will rebound this year, you think next year, maybe by the middle. Do you still think this? Is not 2010 a little too optimistic? JCT: “The ECB’s staff agrees completely with almost every international institution or public or private analyst, who forecast a drop in economic activity, initially very sharp in the first quarter but flattening out over the rest of the year, stabilising by the end, and with growth returning by the second half of next year. This is the basic scenario. Around it there are a lot of uncertainties, both positive and negative, but I would say the future remains unwritten. The future depends on what each one of us makes it, and leading that will be every head of household in every country.” euronews: Despite signs of recovery and gathering confidence companies are not going to start hiring again overnight. Are we going to have to wait a while, a good few years even before unemployment shrinks again? JCT: “This is absoutely true. We have said as much in our Governor’s meetings. Unemployment has gone up in all the industrialised countries and the eurozone, and this will continue, because it unfortunately corresponds to a fall in economic activity, and the fall in growth. But households themselves can fight back. When their confidence returns they can help fuel the recovery by consuming more, so companies will resume investment. The key is confidence.” euronews: Lets talk about market regulation. The G8 appears to be split between, let’s say, the hardcore French and German position on controls and the more flexible anglo-saxon approach. Where does the ECB sit on this question? JCT: “I’m not so sure this description of two camps is reflected in the current reality. What I see is a large concensus on as quick a move as possible towards better regulation that allows greater transparency, and cuts out the short term strategies that got the global economy into this mess. There was a boom period and now we are living through a very, very difficult period that is as bad as the abnormally good times were good. We have to ensure that these sorts of fluctuation are less brutal, and this idea has international support. The ECB will participate actively. We will not be forgiven if we just start again as before. Our citizens will be furious, and they’ll be justifiably so:”
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