Trichet says EU fund must be big enough for task

Trichet says EU fund must be big enough for task

Paris: European governments’ response to the crisis, including a stabilisation fund set up to deal with it, must be large enough to deal with scale of the problems, European Central Bank president Jean-Claude Trichet said.

Speaking in Paris, Trichet appealed to euro zone governments to press ahead with a “quantum leap" in fiscal governance and said he did not think budget cuts to curb swollen deficits would drive a recovering European economy back into recession.

The ECB chief repeated, following Thursday’s rate decision, that the central bank was pressing ahead with acquiring European sovereign bonds and he said “that’s what observers of the market have seen". Bond traders said the ECB bought chunks of Irish and Portuguese bonds on Thursday, lowering the risk premium.

“It is extremely important that everything is commensurate to the dimension of the challenges," Trichet told journalists, in response to a question about reports European governments might need to boost a €750 billion bailout fund.

Analysts say the stabilisation fund might begin to look stretched if Portugal and Spain were forced to follow Ireland and Greece in seeking rescues.

Trichet said that need for an appropriate response in quantitative and qualitative terms applied to governments’ fiscal policies, structural reform and the “collegial collective action that we might have including through the stabilisation fund."

Trichet said the euro currency was “credible" and had preserved its value, which was crucial for the stability of the 16-nation bloc and the well-being of its citizens.

“We have a problem at the moment which is not a problem of the euro currency but a problem of the budgetary policies which were not correct, despite the rules, and that is what must be corrected and it is that which will be corrected," he said."

European Economy “Relatively Dynamic"

As Spain renewed calls for closer integration of economic policy, Trichet said the main lesson of the crisis was the need to strengthen governance in the euro zone and Europe in general.

“We need ... in the current period engage in a quantum leap in the governance of the euro zone," he told journalists.

With the euro zone’s current debt crisis hurting the euro’s image, Spanish Economy Minister Elena Salgado said that if Europe is to have a single currency then it must also integrate economic policymaking.

“We have to improve economic governance in Europe. You cannot have in the long term a common currency without a common economic policy," Salgado told BBC radio.

The ECB chief noted that the euro zone’s fiscal gap would be lower next year than in the United States or Japan and he said the European economy had been “relatively dynamic" since the beginning of the recovery, prompting many observers including the ECB to raise their growth forecasts.

“But this is no time for complacency, neither as regards financial stability nor as regards the real economy."

Asked if austerity measures would push euro zone states into recession, he had earlier told RTL radio: “I don’t think so".

Trichet also declined to comment on speculation about the possibility of Bundesbank president Axel Weber replacing him at the helm of the ECB next year when his term expires.