THE GROUP of 20 rich and developing nations must tackle global economic imbalances in its new role as the key international policy forum, European Central Bank (ECB) president Jean-Claude Trichet said yesterday.
Mr Trichet told Italy's Corriere della Seranewspaper that the G20's new role, backed up by advice from the International Monetary Fund and the Financial Stability Board, would allow a good combination of expert analysis and peer pressure.
“It is particularly important that the G20 is designed to be the premier forum for international economic co-operation,” he said, according to an interview transcript on the ECB’s website.
“The G20 has to address the issues of the domestic large imbalances between savings and investments, and of the set of unsustainable external imbalances. We know that these imbalances have been at the roots of the present difficulties. If we don’t correct them, we’ll have the recipe for the next major crisis. And this of course would be totally unacceptable.”
Mr Trichet said central bankers appreciated G20 leaders’ commitment to fiscal responsibility and their comments in Friday’s Pittsburgh communique that a sense of normalcy should not lead to complacency. Failing to wind back public stimulus programmes at the right time would damage confidence and delay recovery, he added.
“One thing is sure. When time comes, systemic economies are not credible in going back to sustainable fiscal policy in the mid to long run,” he said. “We won’t have the recovery which we are hoping for, because governments would not inspire confidence to households and corporate business. It is the evaporation of confidence that created this dramatic turmoil. Now we have to do everything to rebuild confidence.”
Mr Trichet said US policymakers’ commitment to a strong dollar was important in keeping currency markets and the global economy stable, repeating a long-held position.
The ECB chief said the recent improvement in financial markets was not surprising, given the actions taken by central banks and governments, and policymakers were keen to see how this would feed into the real economy.
“We monitor with great attention at this stage the interaction between the financial sphere and the real economy,” he said.
Mr Trichet urged banks to boost their capital bases and said the Basel Committee on Banking Supervision’s proposed new banking rules struck a good balance between taking a long-term view of capital needs and avoiding measures that would stop lending.
“With the improvement observed in the financial markets, some institutions and market participants might think that there is no need for the reforms designed at global level. It would be plain wrong to think that,” he said. – (Reuters)
