1.7.2011
By Simon Miller
Interest rates are not to blame for the troubles in peripheral Eurozone countries according to the president of the European Central Bank (ECB) Jean-Claude Trichet.
Giving evidence to a hearing of the Committee on Economic and Monetary Affairs of the European Parliament yesterday, Trichet said that interest rates had to be set in an area-wide perspective and not tailored to specific economic conditions in individual states.
Although setting the policy rate was carried out with a clear focus on the euro area as a whole, Trichet pointed out that the ECB has adopted a number of non-standard measures to take into account disparate financial conditions.
However, he rejected criticism that interest rates were at fault for the problems in countries such as Ireland, Portugal and Greece.
Critics have pointed out that with no control over their own interest rates, the periphery countries had suffered from interest rates that suited Germany and Netherlands better.
Trichet commented: “The current major challenges faced by a few euro area countries are mainly the result of some governments not conducting sound policies and not implementing reforms that would benefit their citizens and the European public as a whole. It is essential that euro area countries fully assume the responsibilities at the national level that derive from their participation in the euro area.”
He said that past experiences of fiscal consolidation episodes demonstrated the long-term benefits of reducing sizeable fiscal imbalances: promoting long-term growth; bolstering confidence; and helped create buffers that would be essential to deal with unforeseen events.
Trichet added: “It is also for this reason that the ongoing negotiations on the governance package should produce an ambitious outcome. I have been emphasising time and again why we are very much in agreement with the European Parliament on this – the need for a quantum leap in economic governance through the currently discussed legislative package.”
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