Trichet says burden of higher oil prices must not fall on manufacturing sector
Trichet says burden of higher oil prices must not fall on manufacturing sector - Forbes.com
09.14.2005, 09:26 AM
BRUSSELS (AFX) - European Central Bank president Jean-Claude Trichet said euro zone governments must ensure that the burden of higher oil prices does not fall only on manufacturing industry but is shared by others, such as consumers.
The manufacturing sector was left to bear the full burden of higher oil prices in the 1970s, with the result that economic growth was hit hard, and this mistake must not be repeated, he said.
'We must above all not commit the errors that were made after the first oil shock, and for which Europe paid a very high price,' he told the European Parliament economic and monetary affairs committee.
'Our message at the central bank is very clear -- above all, do not make the productive sector pay the cost of this additional transfer (of wealth to oil producing countries). Economic agents must accept that this transfer is financed by them, otherwise we will weaken the European economy for a long time,' he said.
He said euro zone finance ministers had agreed that energy taxes should not be reduced in response to the rise in oil prices, but that assistance could be given to their poorest citizens.
On interest rates, Trichet said rates since the launch of the euro have been at low levels which would have been 'considered a dream' before monetary union, and the ECB's contribution to growth and job creation is generally underestimated.
He reiterated that the ECB council considers the current level of rates as appropriate, and that is not preparing for a rate hike or a rate cut, but is exercising particular vigilance over inflation risks. The ECB's key rate has been at 2.00 pct since June 2003.
He said strong monetary growth is a medium-term inflation risk and rising house prices need to be monitored closely.
House price rises are not alarming for the euro area as a whole, although prices have risen sharply in some individual countries, he said.
And in contrast to other economies, capital gains from house price increases do not fuel consumer spending in the euro zone, so the economic impact of housing market dynamics is more limited, he said.
Trichet also said that central banks and financial market regulators need to develop a better understanding of the implications of the growth of hedge funds for financial stability.
He said global markets clearly benefit from the liquidity provided by hedge funds, but central banks need to carry out further studies on the implications of their expansion.
'It is clear we are not yet at the optimum in terms of avoiding accumulation of risks,' he said.
But any regulation of hedge funds must be agreed internationally, he said.
'When the time comes, if we decide that we have to change a number of elements in the regulation, then I am adamant that it be global,' he said.
09.14.2005, 09:26 AM
BRUSSELS (AFX) - European Central Bank president Jean-Claude Trichet said euro zone governments must ensure that the burden of higher oil prices does not fall only on manufacturing industry but is shared by others, such as consumers.
The manufacturing sector was left to bear the full burden of higher oil prices in the 1970s, with the result that economic growth was hit hard, and this mistake must not be repeated, he said.
'We must above all not commit the errors that were made after the first oil shock, and for which Europe paid a very high price,' he told the European Parliament economic and monetary affairs committee.
'Our message at the central bank is very clear -- above all, do not make the productive sector pay the cost of this additional transfer (of wealth to oil producing countries). Economic agents must accept that this transfer is financed by them, otherwise we will weaken the European economy for a long time,' he said.
He said euro zone finance ministers had agreed that energy taxes should not be reduced in response to the rise in oil prices, but that assistance could be given to their poorest citizens.
On interest rates, Trichet said rates since the launch of the euro have been at low levels which would have been 'considered a dream' before monetary union, and the ECB's contribution to growth and job creation is generally underestimated.
He reiterated that the ECB council considers the current level of rates as appropriate, and that is not preparing for a rate hike or a rate cut, but is exercising particular vigilance over inflation risks. The ECB's key rate has been at 2.00 pct since June 2003.
He said strong monetary growth is a medium-term inflation risk and rising house prices need to be monitored closely.
House price rises are not alarming for the euro area as a whole, although prices have risen sharply in some individual countries, he said.
And in contrast to other economies, capital gains from house price increases do not fuel consumer spending in the euro zone, so the economic impact of housing market dynamics is more limited, he said.
Trichet also said that central banks and financial market regulators need to develop a better understanding of the implications of the growth of hedge funds for financial stability.
He said global markets clearly benefit from the liquidity provided by hedge funds, but central banks need to carry out further studies on the implications of their expansion.
'It is clear we are not yet at the optimum in terms of avoiding accumulation of risks,' he said.
But any regulation of hedge funds must be agreed internationally, he said.
'When the time comes, if we decide that we have to change a number of elements in the regulation, then I am adamant that it be global,' he said.
posted by Marcel at 7:52 AM
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