Tags: Trichet | US | UK | Deficit

Trichet: U.S., EU Can't Sustain Such Huge Deficits

Friday, 29 January 2010 08:21 AM

The head of the European Central Bank warned Thursday that U.S. and European Union deficits were unsustainable and urged authorities to take tough measures to strengthen public finances.

"We all have a very, very big challenge there," Jean-Claude Trichet told CNBC television.

"The levels of public finance deficit are not sustainable on both sides of the Atlantic — that's absolutely clear," he said.

"We have to reinforce the confidence of our own people, also our entrepreneurs, in our capacity to go back to a sustainable position."

He appealed to "all European countries to stick to the rigorous implementation of the programs that have ... been decided."

The programs aim to curb public spending, which surged as governments spent heavily to beat back recession.

Trichet cited no euro zone member in particular but market concerns have focused lately on worrisome debt and deficit levels in Greece, Ireland, Spain and Portugal.

A finance crisis in Greece, which last month was hit by downgrades from all three international rating agencies, is seen by analysts and officials as posing a threat to the cohesion and health of the euro zone.

Greek Prime Minister George Papandreou, speaking at the World Economic Forum in Davos, Switzerland on Thursday, lashed out at speculators he said were targeting his country as a "weak link" in the eurozone.

He admitted that Greece has a "credibility gap" but insisted that he had not sought a bailout from the country's European partners.

He spoke after the French newspaper Le Monde said euro zone governments were considering financial support for Greece, whose massive debt has shaken the euro single currency.

Responding to the report, Papandreou said: "We haven't asked for money from the European Union."

Underlining the pressures that Greece faces, the yield on Greek 10-year bonds soared to 7.126 percent on Thursday from 6.706 percent on Wednesday, hitting its highest level since Greece joined the euro zone in 2001.

The turmoil in Greece has meant that the country must pay substantially more than many of its euro zone partners to attract investors to buy its debt.

On Thursday, the yield on Greek bonds was nearly 4.0 points higher than that on the benchmark German Bund.

Earlier this month a group of prominent researchers warned that the United States was heading down a path towards lower living standards and diminished confidence unless it reined in a huge budget deficit.

"The federal government is currently spending far more than it collects in revenues, and if current policies are continued, will do so for the foreseeable future," said the report from the National Research Council and National Academy of Public Administration.

"No reasonably foreseeable rate of economic growth would overcome this structural deficit. Thus, any efforts to rein in future deficits must entail either large increases in taxes to support these programs or major restraints on their growth — or some combination of the two."

The US government closed its 2009 fiscal year with a record 1.416-trillion-dollar budget deficit and the White House forecasts an even bigger gap of 1.502 trillion dollars in fiscal 2010, said the report

© AFP 2019

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The head of the European Central Bank warned Thursday that U.S. and European Union deficits were unsustainable and urged authorities to take tough measures to strengthen public finances. We all have a very, very big challenge there, Jean-Claude Trichet told CNBC...
Friday, 29 January 2010 08:21 AM
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