ECB chief welcomes US rescue of mortgage giants (AP)
10.09.2008 15:20 Finance
Trichet said the decision by U.S. Treasury Secretary Henry Paulson was justified because of still-turbulent financial markets.
"Had he not taken the decision he took, we would be in a totally different universe," Trichet told the European Parliament's economic and monetary affairs committee.
He said the ECB, like other central banks around the world, would "remain very, very alert, permanently" to prevent turmoil in credit markets and to combat rising inflation.
"We are experiencing an ongoing correction of great, great magnitude with turbulent episodes, the tensions are still there, and this is no time for complacency, that is clear," Trichet said. "In present circumstances, all authorities have to be up to their responsibilities."
He said central banks generally praised the U.S. move to take over the two mortgage giants.
"The overall reaction was, certainly again not to judge what has been done, but to think that it was in the circumstances, which are obviously exceptional, a decision that was welcomed," said Trichet.
He praised efforts by the United States and other actors to take decisions in a "wise and expeditious manner" to limit economic damage from the credit crisis.
Trichet said the euro single currency was helping "considerably to smoothen the pressure" of difficult times that economies in the euro-zone were facing. He predicted that, after weak second- and third-quarter growth in the region, the economy would pick up again in 2009.
Trichet said inflation would likely fall to 3.4 percent to 3.6 percent later this year, and then from 2.3 percent to 2.9 percent in 2009.
He predicted gross domestic product growth of between 0.6 percent and 1.8 percent next year in the 15 countries that use the euro.
Trichet also called on EU governments to work closely with labor unions and commodity sellers such as oil exporters to keep a cap on wages and prices to curb a further rise in inflation.
"It is of the essence that all relevant authorities, price setters and social partners meet their responsibilities," he said.
But he put the primary blame for high inflation on soaring commodity prices and said suppliers of energy and other food commodities had a responsibility to cap prices.
"Commodity prices are the main culprit for the global phase of inflation that we are experiencing," Trichet said. "Nobody has anything to gain if we continue to have a high level, certainly not the demand side and certainly not the supply side."
The ECB left its key interest rates unchanged last week, reluctant to move them lower as rising prices offset the fear of weaker growth and recession.
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