THE EUROPEAN Central Bank (ECB) will not change the course of its monetary policy to assist those euro area members such as Ireland, Spain or Portugal that are currently experiencing economic difficulties, the president of the ECB, Jean-Claude Trichet, has told The Irish Times. Paul TanseyEconomics Editor reports.
"The ECB has to care for the superior interest of the euro area," Mr Trichet said, adding: "Our monetary policy must be optimal at the level of the whole euro area - exactly like the Fed [ the US central bank] would not look at what is in the interest of Missouri, California or Texas."
The only goal of the ECB is to ensure price stability in the medium term, Mr Trichet said. By anchoring inflation and curbing inflationary expectations, the ECB strategy underpins a financial environment favourable to job creation and sustainable economic growth.
Responsibility for solving specific economic problems confronting individual euro area members rests with national governments, parliaments and social partners, he said.
"There are numerous aspects of economic policies which are under the responsibility of the countries themselves, in particular fiscal policies, structural policies and the surveillance of the evolution of unit labour costs," Mr Trichet continued.
Asked if the worst of the global credit crisis was over, the ECB president responded: "My assessment is that we are experiencing since the month of August last year an ongoing very significant market correction with episodes of turbulence, episodes of a high level of volatility and of hectic market behaviour. Again, it is an ongoing process."
International hedge funds and highly leveraged institutions, which many see as prime movers of market volatility, should be given an opportunity to work out codes of conduct and to define best practice.
"We shall see if this work is satisfactory from the standpoint of financial stability. Should this not be the case, then there is always the possibility of involving the public authorities," Mr Trichet said.
Ireland's rejection of the Lisbon Treaty would have no impact on the workings of the euro area. "As the president of the ECB, I would like to say that the Lisbon Treaty does not affect the Economic and Monetary Union (EMU) framework and therefore the present difficulty of ratification does not affect in any respect our work," Mr Trichet said.
On a personal note, he added: "As a citizen I hope very much, and am confident, that we will find a way to overcome the current difficulties."
The ECB raised its key interest rate from 4 per cent to 4.25 per cent a fortnight ago, triggering increases in Irish interest rates.
However, Mr Trichet refused to be drawn on the future of ECB interest rates. The ECB is "never pre-committed" to interest rate changes, he said, adding "we will do in the future whatever is appropriate to deliver price stability in the medium term".
Mr Trichet was interviewed by four journalists representing The Irish Times, Le Figaro, Frankfürter Allgemeine Zeitungand Jornal de Negóciosin Frankfurt.
Inflation in the euro area is running at twice the rate the ECB defines as price stability - below, but close to 2 per cent. Inflation, excluding mortgage interest, reached an all-time high of 4 per cent in the 12 months to June. However, Mr Trichet predicted that the current inflationary surge would wane over the next 18 months. "Today, price setters and social partners must take into account that we will be back to price stability - in line with our definition - say over 18 months," he said.
There was likely to be "a trough in the profile of growth" within the euro area during the second and third quarters of this year, Mr Trichet anticipated.
Thereafter, there would be a progressive return to moderate rates of economic expansion, the ECB president said. However, he stressed that all the risks to growth were on the downside, including "the ongoing very significant financial market correction, the possible further increases in oil and commodity prices and the possible unwinding of global financial imbalances".