Trichet urges Ireland to be on 'permanent' alert

EUROPEAN CENTRAL Bank (ECB) chief Jean-Claude Trichet has urged the Government to remain on “permanent” alert in the face of it economic challenge.

While praising the Government’s efforts to restore order to the public finances, he adopted a cautious response to the suggestion by Minister for Finance Brian Lenihan that the worst was over for Ireland.

He was speaking at ECB headquarters as policy-makers left its main euro zone interest rate unchanged at 1 per cent, saying the central bank expected price stability to be maintained over the medium term.

Although economists believe the central bank may start increasing interest rates from their exceptionally low level near the end of this year, the ECB’s current assessment suggests there is little prospect of any imminent rise.

Mr Trichet expressed confidence in the capacity of the Greek authorities to correct their wayward public finances, adding that the deficit of the euro zone compared favourably with large economies such as the US and Japan.

Without naming any specific countries, however, he said many members of the single currency face “large, sharply rising fiscal imbalances, leading to less favourable medium and long-term interest rates and lower levels of private investment”.

He said there was no scope for complacency when asked if Irish people were right to be sceptical about Mr Lenihan’s assertion that the period of greatest difficulty had passed or whether the Minister was correct.

“We all have to remain alert permanently....But let me also add that the decisions which have been taken by the Irish Government to put the house in order have been very impressive. I take it that they were right, and I take it that this is something which, of course, probably was what the Minister for Finance was alluding to.”

Having warned last month that Greece had no right to expect special treatment from the European authorities, Mr Trichet welcomed the government’s new austerity measures three days ago.

“The ECB governing council approves of the medium-term goal that has been fixed by the government to get back to less than 3 per cent of public finance deficit as a proportion of GDP in 2012.”

Mr Trichet expects the euro area to grow at a moderate pace in 2010. However, he warned that the recovery process was likely to be uneven.

He said that banks which make profits in the current situation should use their surpluses to rebuild their capital base and make credit available. “We do not accept that we have supply constraint in the present period,” he said of the credit market.

“Our message for the banks is very clear. It’s good that you make money. We prefer that you are making money instead of losing money – because when you were losing money it was a drama. But, don’t forget, you have a duty.”

He said this flowed from the efforts of the public authorities to avert a depression and the commitment of taxpayers to banks.