ECB chief calls for tighter budgets worldwide

23rd July 2010, Comments 0 comments

European Central Bank president Jean-Claude Trichet waded Friday into the global debate over budget austerity versus economic stimulus as investors awaited results of stress tests on European banks.

Without mentioning the pending release of results designed to show if 91 European banks could withstand massive shocks in the next two years, Trichet pressed industrialised countries to cut spending and reform their economies.

"Now is the time to restore fiscal sustainability," the ECB chief wrote in commentary published by the Financial Times.

Trichet said he was reassured by a consensus on the need to unwind measures taken to prevent the great recession of 2008-2009 from becoming a depression, but noted that "the timing remains disputed."

Officials including US President Barack Obama and Federal Reserve chief Ben Bernanke have called for prolonging economic stimulus until a recovery is firmly established, and some economists also say fiscal tightening will choke off growth.

"I disagree with both these views," Trichet wrote.

ECB figures show that "the volume of taxpayer risks earmarked to support the financial sphere," including fresh capital for banks, credit guarantees and the taking on of bad loans, "was as high as 27 percent of gross domestic product (GDP)," he noted, on both sides of the Atlantic.

Now, "we expect governments to confirm their determination to consolidate their public finances," Trichet said.

© 2010 AFP

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