Julian Callow

In an interview with Figaro, ECB President Trichet was asked why the ECB, with respect to the euro area, did not fear deflation risks, unlike Fed Chairman Bernanke (with respect to the US). Mr Trichet responded that there were "major structural differences" between the euro area and US economies, and that "the fear of deflation, which is the risk of a lasting, general fall in prices, emerges from time to time in the US, although, very fortunately, this risk has not materialised in Europe". He then referred to a "remarkable anchoring of inflation expectations in line with our definition of price stability", and noted that euro area inflation in the past 11 1/2 years had averaged 1.97%.

Mr Trichet also observed that "Europeans have the capacity to take appropriate, bold decisions when necessary". Contrasting US and European decision making, in particular the problems experienced by the US administration in approving TARP, he observed, "In spite of its complex decision-making system, Europe has succeeded in demonstrating remarkable resilience".

On rating agencies, Mr Trichet commented that while ratings were essential to the smooth functioning of the market economy, "it is not necessarily healthy for this to be concentrated in just three institutions at the global level". However, "I do not believe that the inevitable solution is to create a public institution; we must continue to assess the options", while "the good solutions have to be global ones".

When asked about Germany, Mr Trichet commented that "the way in which Germany has kept a very close eye on production costs and implemented reforms to increase flexibility could serve as an example to all of its neighbours".


source: BarCap