Tags: trichet | end | stimulus

European Bank Chief: Roll Back Stimulus Now

By    |   Thursday, 25 Jun 2009 05:06 PM

European Central Bank President Jean-Claude Trichet said governments need to rein in stimulus spending or risk prolonging economic problems.

"As far as risk, risk premiums on money markets, the functioning of the money markets is concerned, we have returned to a situation I would qualify as 'pre-Lehmans'," Trichet told Europe 1 radio.

"We are in exceptional circumstances," he said, adding that financial markets and consumers had to be convinced that budgets would return to normal.

Trichet stressed the need for strengthening the rules underpinning the global economy, noting the global crisis had revealed the fragility of the financial system, which in turn encouraged short-term decisions and reinforced cyclical swings.

"We would not be forgiven for starting again with the same degree of fragility," he said.

The U.S. Congressional Budget Office projects the 2009 deficit to be $1.7 trillion, about 12 percent of gross domestic product. That represents the largest deficit share of the economy since World War II, according to a Brookings Institution report.

Put another way, the 2009 U.S. federal deficit will be larger than the GDP of all but six other countries in the world.

The deficit would be significantly larger without record-low interest rates, which have substantially reduced federal net interest payments.

Even adjusting for the state of the economy and the financial interventions, the “structural” deficit is 5.7 percent of GDP, indicating serious ongoing imbalances, inherited from the previous administration, according to the report.

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European Central Bank President Jean-Claude Trichet said governments need to rein in stimulus spending or risk prolonging economic problems."As far as risk, risk premiums on money markets, the functioning of the money markets is concerned, we have returned to a situation I...
trichet,end,stimulus
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2009-06-25
Thursday, 25 Jun 2009 05:06 PM
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