January 2009
‘Let’s stick to the rules’
Trichet’s balancing act
‘Banks will not forget that their job is to lend’
Governments are finding themselves under increasing pressure on finances. Financial stability criteria are being breached. Often temporary breaches become permanent. Does this concern you?
We have a simple position, namely that it is important to respect the rules of the Stability and Growth Pact. The rules were precisely changed a few years ago to take into account exceptional circumstances. So let’s stick to the rules. Within these rules there are some governments that have room for manoeuvre, others that have less, some that have none. But one needs to look at the situation not just through the grid provided by the rules, but also through the grid of economic and financial reason. Some governments have no difficulty financing their deficits, others do. This manifests itself in the spreads some pay over and above what others pay. Sustainability of public finances is also part of confidence building.
You also need to take into account that in Europe the play of the automatic stabilizers are important when the business cycle is going downwards. Public spending as a percentage of GDP is higher in Europe than the US. Social protection is also more important.
So the position of the ECB’s Governing Council is that if you have room for manoeuvre, you should use it but the rules of the Stability and Growth Pact, as amended, have to be respected.
Is there a danger that countries outside the single currency will look to speed up entry because of the safety net it is perceived to provide?
It’s an important decision for any country to join the euro. It means you will accept that you share a common destiny with other nations.
There are rules: and we trust that whatever the circumstances are there is appropriate preparation so that the convergence of the economies concerned is convincing not only at the moment of the entry but also on a sustainable basis. If you want to join the euro, you have to be fully prepared, both in your own interests and in the interest of fiscal stability of the euro area as a whole.