Brussels, 19/12/2007 (Agence Europe) - In his speech to the European Parliament's economic and monetary affairs committee, Jean-Claude Trichet stressed that “lucidity of diagnosis, rapid decision-making and absence of complacency are absolutely necessary”. He also explained that current uncertainties could lead to “quite painful adjustments” in the financial system. The day after the European Central Bank's (ECB) decision to inject liquidity into the monetary market, its president also reaffirmed on Wednesday 19 December that he would be vigilant with regard to inflation.
A week after having led a concerted action with the main international central banks (EUROPE 9564), the ECB again took similar action and announced a new cash injection into the financial markets. It decided to allocate an exceptional amount (€348.6bn) to the merchant banks at base rates of 4.21% (lower than the inter-bank conditions) and for a two week period (until 4 January 2008). This intervention is aimed at reducing market tension and re-establishing the banks' confidence, as they have been balking at lending money because of fears about possible bankruptcies. Although certain MEPs welcomed this massive action by the ECB, others wanted to know about the link between this kind of operation on the money markets and the direction of monetary policy. Mr Trichet told Dariusz Rosati (PES, Poland) and Wolf Klinz (ALDE, Germany) to not confuse things and explained that they were “distinguishing between the two elements”. He confirmed to Alexander Radwan (EPP-ED, Germany) that it was still too early to draw political lessons from the market turbulence but said that increased transparency is the “watch-word today” to prevent similar perturbations re-occurring.
Trichet is determined to control any inflationary spiral and pointed out that “the period of temporarily high rates of inflation would be longer than initially anticipated”. As at the close of the last meeting of the ECB's board of governors' meeting (EUROPE 9559), he added that preventing possible price rise repercussions on consumer prices and wages is “essential” (secondary effects). In response to criticism from several MEPs over the ECB's repeated insistence on wage restraint, Mr Trichet reaffirmed the message, which “applied to all”. If secondary effects were to appear, inflation could become permanent, Mr Trichet explained to Elisa Ferreira (PES, Portugal). The former also provided assurances that the ECB would not hesitate to “do all that is necessary” to avoid compromising its medium and long term price stability efforts. Addressing Astrid Lulling (ALDE, Luxembourg), who criticised him for still preaching moderation to social partners but without ever mentioning governments or the European Commission, Trichet affirmed: “We are asking all those responsible for administering price rises and indirect prices to reject these rises”. He conceded to the president of the committee, Pervenche Berès (PES, France), that certain wage rises for company bosses did not correspond to the general message of moderation. (A.B.)