Brussels, 11/09/2007 (Agence Europe) - On Tuesday 11 September, Jean-Claude Trichet and Joaquin Almunia, who were invited to discuss the current instability on financial markets with the members of the parliamentary committee on economic and monetary affairs, said they wanted greater transparency of financial markets and restored confidence of economic actors. They all called for caution and said one should think before acting.
Confirming the analysis made during the presentation of the latest growth figures in Europe (see above article), Mr Almunia was optimistic about the current year although he did acknowledge some uncertainty. He went on to say that, despite the fact that some forecasts show the recovery peak is already behind us, the situation continues to be favourable as fundamentals are sound. According to the Commission's intermediary forecasts, the overall scenario for 2007 has not really changed but upheavals on the financial markets do increase the risks weighing on these figures and still more on those for next year.
As he pointed out during last week's plenary (EUROPE 9495), the Commissioner stressed the importance of consumer and investor confidence. If confidence is not restored, this would have an adverse effect on European economic activity, he said. He went on to say it is nonetheless a little soon to jump to conclusions about the impact of the upheavals on the subprime mortgage market and one should not react over-hastily with over regulation. Europe must avoid the “Sarbanes-Oxley type mistake”, after the name of the American promoters of federal legislation adopted after the financial scandals such as Enron in order to toughen corporate accounting and financial obligations, he said.
“Confidence and transparency are at the route of our analysis of the current situation”, explained the president of the European central Bank (ECB). Mr Trichet said that they were currently facing a paradox given the large number of good quality assets mistakenly considered as not very interesting by investors. He said that, “We have to improve the situation but give ourselves the time for reflection” because the “market correction episode” was not entirely behind them. He added that, “We are currently in a correction phase that, often in these situations, includes episodes of excitable behaviour, high levels of volatility and elements of exaggeration”.
He insisted that there should not be any hasty reaction in this context and alluded to some of the problem sectors, such as the notation agencies. He insisted on the need to improve market monitoring and called for the swift application of what had already been subject to consensus. In a reference to the conclusions of the Financial Stability Forum in which, “we ask them to do the work themselves for fixing benchmarks”, Trichet stressed that the hedge funds industry therefore had to be allowed to work as it saw fit on what conduct to follow. Although he said that they should not waste time in any of these areas he said that before moving any further, it what necessary to show what they had decided not to implement.
The risks are inherent, The ECP president asserted that, “in a market economy we take risks, when we take bad risks we are punished”. He provided assurances that the ECB would no compensate anyone. He also explained that the ECB interventions consisted in lending several billion Euro but with interest to be paid. He pointed out that the money injected did not aim to compensate bad behaviour but prevent those how had behaved well from paying the price of the others.
Price stability and effective functioning of the financial markets, especially the money markets are two responsibilities the ECB has to assume without mixing them up or sacrificing one on the altar of the other, Mr Trichet emphasised and pointed out that he was free to act on interest rates. Returning to the Council of governors' recent monetary policy decision, he explained that upward risk continued to weigh on price stability perspectives in the medium term. (ab)