“On exchange rates, particularly against the dollar, I reaffirm that disorderly movements in exchange rates are undesirable from the point of view of economic growth,” he told France’s Le Point weekly. “In the present circumstances I am concerned by excessive exchange rate movements.” The interview was conducted on Saturday and the ECB gave clearance for its publication on Monday after making amendments, the Le Point journalist who spoke to Trichet told Reuters. Trichet made similar comments on Monday after a meeting of central bank governors in Basel, Switzerland. However, on that occasion, he did not specifically pick out the dollar, when speaking of the undesirability of disorderly currency moves.
The euro hit record highs just above $1.5450 on March 7 before the interview was conducted and has since scaled new peaks above $1.56 on Thursday. In a repetition of recent comments, Trichet told Le Point: “I noted with extreme attention the reaffirmation by the US authorities, in particular the President and the Treasury Secretary, that a strong dollar was in the interests of the US economy.” Despite, such declarations by the US authorities, the euro has risen nearly 7% against the dollar so far this year, building on gains of more than 12% in 2007. Gains made against a range of other currencies have lifted the ECB’s preferred trade-weighted measure to record highs.
REBUFFING CRITICS
Trichet rejected criticisms that the European Central Bank and the US Federal Reserve had created the conditions that eventually led to the subprime crisis in the United States, which generated turmoil in world financial markets. “You have to choose between the criticisms. Either we are reproached for being too orthodox and having interest rates that are too high. Or we are reproached for being too kindly to the financial markets and having rates that are too low,” he said. “Both criticisms are unjustified.” He stressed the importance of ensuring medium-term price stability at a time when the price of oil and other commodities was rising. “If we were no longer credible in ensuring price stability, households would lose confidence and the financial markets themselves would be more turbulent because they would be troubled by uncertainty over inflation in the medium term,” he said.
Trichet said that well before the crisis the ECB and other central banks had flagged that financial market risks were being underestimated and corrections were necessary. “You will have seen that the ECB was particularly active and energetic to allow the best possible functioning of the market, and therefore ensure that the necessary corrections on the financial markets could be as orderly as possible,” he said. Turning specifically to France, Trichet said the euro zone’s second biggest economy could do better in terms of long-term growth and jobs. “We support the policy of reforms. For example, the labor market isn’t flexible enough … A second example, the very high level of total public spending brakes growth,” he said. (Reuters)
