Berlin: The euro is not under attack, European Central Bank president Jean-Claude Trichet was quoted on Saturday as saying, despite its fall to an 18 month low against the dollar.
Europe found itself in the worst situation since World War Two and possibly since World War One, he said in an interview with Germany’s Der Spiegel magazine.
But he described as “nonsense” any suggestion euro zone governments had forced the ECB to act this week, sending out a fatal signal on its independence and credibility.
Trichet also called for a quantum leap in mutual monitoring of governments’ budgets by their euro zone peers, and said effective sanctions were needed for breaches of the Stability and Growth Pact that is supposed to limit budget deficits but has been widely disregarded.
European governments bore responsibility for the euro’s slide rather than currency markets, Trichet indicated in the Spiegel interview.
“It is not a question of an attack on the euro. It is to do with the public sector and hence to do with financial stability in the euro area,” he said.
“It’s clear that the chief responsibility of Europeans is to take appropriate measures to counteract the current tensions in Europe.”
The euro slid as far as $1.2358 on electronic trading platform EBS on Friday, the lowest since October 2008.
Trichet has long urged euro zone governments to reduce their budget deficits and thereby prevent a steep rise in their debt. Failure of the Greek government in particular to take this advice led to a debt crisis that risked spreading to other euro zone countries with similar problems, and beyond.
On Monday the ECB began buying government bonds issued by some euro zone governments, reversing its long-standing resistance to such moves to prop up the euro zone debt market.
“This is nonsense”
Trichet rejected a suggestion by Spiegel that the public had the impression it had been forced into action by euro zone governments, sending a fatal signal on its independence and credibility.
“This is nonsense,” he said. “We take our decisions in complete independence and we have many times set ourselves against the heads of government.”
Trichet also called for far better monitoring of euro zone government budgets. Under the Stability and Growth Pact these should run deficits of no more than three percent of GDP, although some countries have reached nearly four times that.
Asked whether Greece should leave the euro zone, he said: “No, this is not an option. When a country enters monetary union, it shares a common fate with the other countries.”
However, he added: “What we need is a quantum leap in mutual surveillance of economic policies in Europe. We need improved mechanisms to prevent and punish misconduct.”
“We need an effective implementation of the mutual control, we need effective sanctions for breaches of the Stability and Growth Pact. The ECB calls here for profound changes.”
Referring to the state of financial markets since the collapse of Lehman Brothers investment bank, he added: “Without a doubt, since September 2008 we have been in the most difficult situation since the Second World War, perhaps since the First. We have experienced and are experiencing really dramatic times.”