European Central Bank President Jean-Claude Trichet spoke to the Wall Street Journal and was quite reluctant to acknowledge some of the 16-nation currency bloc’s financial problems. He said that Europe does not need to use fiscal policy as liberally as the United States has.
He took some shots at the global financial community, stating that it is unjustified to criticize Europe for its lack of conviction in battling this crisis. Nonetheless he did offer his own critique of the U.S. situation, stating that the U.S. should be ‘quick’ on implementing a rescue plan and on settling on a final budget.
As far as monetary policy is concerned he said that zero interest rates would not be “appropriate” and that there are “drawbacks” to such a policy. He did, however, acknowledge the obvious, that the economic trend remains “downward.” While he did not give any specifics as to his ideal interest rate target, he did suggest that the bank could lower rates below the current 1.5% mark. Nonetheless, despite the difference in approach taken by the Federal Reserve and the ECB, central banks are not in a ‘race,’ he noted.
Ultimately, he has confidence in the experts that say that deflation will not hit the Euro-Area.
We could see the Euro rally as the news of this interview disseminates among the public. As dwarfed expectations of deflation loosen the notion of a zero-interest rate policy, those seeking yield may send their money to Europe and thus propping up the 16-nation currency bloc.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. Learn forex trading with a free practice account and trading charts from FXCM.
