Doubt of euro members ‘absurd’

THE president of the European Central Bank Jean Claude Trichet gave a boost to confidence in the Irish economy when he said that it was absurd to imagine a euro member being a problem for the euro area.

However, he also told the European Parliament that countries have to take into account the markets when they are designing their fiscal programmes — in other words whether the markets believe a country is a safe bet or otherwise.

“It would be absolutely absurd to imagine that one euro member would have been in a position that would create a problem for the euro area at all,” Mr Trichet told MEPs on the economic and monetary affairs committee.

“I have full confidence in the governments in the euro area to be fully responsible for their own credibility and to take care of their credibility and credit worthiness,” he said.

The key to maintaining such confidence was “moderation and reserve”, he said.

But as well as making prudent decisions about borrowing and spending to stimulate their economies, Mr Trichet had another piece of advice for governments — to take action as soon as possible rather than make more new decisions.

“Time is of the essence. We can regain confidence if we implement what we have decided now, and then in 2010 we can expect growth — that this depends on our capacity to reintroduce confidence,” he said.

A member of the executive board of the ECB, Lorenzo Bini Smaghi, sounded more downbeat when he said that forecasts for the past 12 months have proven to be far too optimistic.

This was because economic models were not designed to take into account the scale of current economic shocks, he said.

He also warned that countries should not expect the same kind of growth to return to the finance and housing sectors as the current crisis passes, as these grew in an unbalanced way in the past.