BRUSSELS (AFX) – European Central Bank president Jean-Claude Trichet said the euro is being unjustly treated as a scapegoat for economic problems in Europe.
Trichet told the European Parliament economic and monetary affairs committee that he detects ‘a tendency to take the euro as a scapegoat, which is extraordinarily unjust, unfair and false.’
He said the euro zone has achieved much better results in growth, job creation and inflation in the eight years since the launch of the euro than in the eight previous years.
‘Over the last eight years — the period in which the single monetary policy has been in place — employment has risen by 9.2 percentage points and the unemployment rate has declined by 1.9 percentage points,’ he said.
‘Let me also stress that if I compare the eight years after the euro was set up with the eight years before the euro, we created 11.73 mln jobs after the euro and only 2.65 mln jobs before the euro,’ he added.
And he said France is among the countries that have benefited from the launch of the euro.
Some French politicians have voiced concern about the recent strength of the euro and have suggested that governments should have some say in the ECB’s monetary policy decisions.
But Trichet said the ECB’s independence from political interference has the backing of the public.
He said a survey showed that 73 pct of euro zone citizens support the independence of the ECB, and the figure for French citizens is 75 pct.
He said the euro zone will only be able to raise its potential growth rate if it speeds up the pace of structural reforms and productivity growth.
‘We can do better and we must do better,’ he said.
He said labour productivity growth has slowed steadily over the past fifteen years, partly because capital investments have not kept up with the pace of job creation.
‘The still existing rigidities in product and labour markets that impair effective competition and flexibility, and more generally the presence of regulatory restraints on business, have prevented firms from investing more strongly in the adoption of new information and communication technologies, which could be effective tools to reduce costs and improve productivity,’ he said.
Slow productivity growth has not only acted as a drag on economic activity, but has also put significant upward pressure on inflation, he said.
‘The increase of unit labour costs due to mediocre productivity, combined with other supply shocks such as oil price increases, have contributed to a level of inflation over the threshold of our definition of price stability of less than 2 pct,’ he said.
He said that growth in output per hour has been around 1 percentage point lower in the euro zone than in the US over the past 10 years. If the euro zone could close this gap, it would lead to a major improvement in its growth potential, he said.
But the euro zone does not necessarily have to take its lead from the US. There are some countries in Europe which have stronger productivity growth rates than the US, and other European countries could follow their example, he said.
Wage negotiators need to take account of such national differences in productivity and unit labour costs when working out pay deals, he added.
Asked about moves by some central banks to put more of their foreign exchange reserves into euros and cut the proportion held in dollars, Trichet reiterated that the ECB takes a neutral line on international use of the euro.
He said shifts in reserves so far have taken the form of an ‘orderly, smooth and slow transformation’.
He said more sharp, abrupt moves in reserves would not be in the interest of the euro zone, the US or of the global economy.
He declined to comment on Iran’s announcement that it would replace the dollar with the euro in foreign transactions and state-held foreign assets, saying that announcements on the move appeared to be ambiguous.
On euro zone enlargement, Trichet said candidate countries should be able to meet the inflation criterion for joining the euro despite upward pressures on inflation generated as their economies catch up with the euro zone.
‘For a country which wants to enter and has made the convergence efforts…there are plenty of possibilities in my opinion for inflation to be contained in line with the treaty,’ he said.
There can be no question of changing the methods used to calculate countries’ compliance with the inflation criterion, he said.
The entry of Slovenia in January proves that the euro zone is not a closed shop, he said.
Meanwhile, the UK and Denmark — which have the right to opt out from euro entry — would be warmly welcomed in the euro zone if they ever decided to join, he said.
Farewell 2006!
Just a quick swan song” check on the final day of trading for the year:
Absurdity abounds: The “carry trade” as the end all, be of all raison d’etre for trading forex. The specious linking of EUR to whatever currency unit may have an “ascending star” vs USD and the insistence of many – especially small traders – who insist fundamentals (too them “funnymentals”) are non-consequential.
Three of my pet peeves for the year ending. Anyone care to bet they won’t be around in 2007?
One that I didn’t touch on above is the firm belief that spec activity in thin market conditions when a lack of couterparty bids/offers are virtually nonexistent will dominate.Who needs “real money” trading when “specs rule”? The Thanksigivng weekend sham and the bizarre behavior of EURUSD the past few days are prime examples of silliness.
But enough of this, time to wish all a happy and proseperous new year. See you on the other side.