Trichet to the rescue?
FT: ECB chief calls for global tightening
ECB chief calls for global tightening
By Chris Giles in London
Published: July 22 2010 18:47 | Last updated: July 22 2010 18:47
Public spending cuts and tax increases should be imposed immediately
across the industrialised world as evidence of a healthy European
recovery mounts, according to Jean-Claude Trichet, president of the
European Central Bank.
In a strident article for the Financial Times, Mr Trichet argues that
policymakers who want to prolong the stimulus are mistaken and that
cutting borrowing would have "very limited" effects on growth.
The view from Europe's senior economic policymaker contrasts with
continued US demands for fiscal tightening to be delayed at least until
2011 and suggests there is still little agreement over the best way to
foster a strong global recovery from the financial and economic crisis
of the past two years.
"We have to avoid an asymmetry between bold, if justified, loosening and
unduly hesitant retrenchment," Mr Trichet says in his article.
Firing a shot at the US administration and the International Monetary
Fund, Mr Trichet criticises last year's global push for budgetary
stimulus.
"With the benefit of hindsight, we see how unfortunate was the
oversimplified message of fiscal stimulus given to all industrial
economies under the motto: 'stimulate', 'activate', 'spend'."
The US view in favour of continued short-term stimulus was repeated by
Ben Bernanke, chairman of the Federal Reserve, on Thursday. Giving
evidence to Congress, Mr Bernanke supported fiscal efforts to boost
demand before the US embarked on a "well-controlled" longer-term deficit
reduction plan.
"In the short-term I would believe that we should maintain a reasonable
degree of fiscal support, stimulus for the economy," Mr Bernanke said.
After his remarks on Wednesday that US prospects were "unusually
uncertain", Mr Bernanke elaborated to US lawmakers yesterday on the
further actions the Fed might take to boost the economy if growth
disappoints. He made clear that the Fed was considering setting
conditions to be met before it would consider raising interest rates.
The differences over the timing of budget cuts reflects in part the
different fortunes of the economies on either side of the Atlantic. US
data on Thursday were mixed, with existing home sales falling less than
had been expected but initial jobless claims higher than forecast.
Although European growth was weak in the first quarter, more recent data
have been surprisingly robust, suggesting the fallout from the Greek
sovereign debt crisis will be more limited than feared. Both
manufacturing and services output in the eurozone grew significantly
faster than expected in July, according to the latest purchasing
managers' indices, driven by a strong performance in both sectors in
Germany and in the services industry in France. The eurozone index of
consumer confidence was also at its highest level in July for more than
two years, the European Commission said. |
