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Trichet: Future shocks; restoring confidence

Exclusive Trichet interview: It is time for banks to start lending again

Q: Do you think that we have seen the worst, if not the last, of the shocks?

A: These are very demanding, many-layered circumstances. We had a very bright period in the global economy, with year after year of record global growth.

In market economies, it is inevitable that such flattering episode will be followed by a darker period. Add to that the shocks of inflationary sudden movements in commodity prices, and an unprecedented layer of financial turbulence then you create this very adverse part of the business cycle.

On the other hand, we now have automatic stabilisers at the global level such as falling oil and commodity prices, which are both disinflationary and expansionary; the unprecedented decisions by central banks and governments to intervene to support banks; and fiscal room for manoeuvre within rules, within the Stability and Growth Pact, which we should not forget.

Q: But isn’t the most important thing that banks believe the worst is over?

A: Confidence is absolutely of the essence. At the height of the crisis, when it was at its most intense, the decline in confidence was extraordinarily rapid, powerful and global.

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