Trichet Says Deflation Risk Has Yet to Materialize in Europe.


European Central Bank President Jean-Claude Trichet must be thinking that we are all fools out there. He takes unprecedented measures to combat the deflationary collapse in Eurozone and yet he claims that deflation is nowhere on the horizion. With leadership like this now wonder the world economy is in such a terrible state.

Consider this Bloomberg report on July 5, 2009:

July 5 (Bloomberg) — European Central Bank President Jean- Claude Trichet said the risk of deflation has yet to materialize in Europe. Speaking at a conference in Aix en Provence, France, Trichet said the financial crisis had “validated” the Frankfurt-based central bank’s focus on the medium-term and managing inflation expectations. “There has been an enormous change in view,” he said.

Anchoring inflation expectations “has meant that until now the risk of deflation hasn’t manifested itself,” he said.

And then this Bloomberg report on July 5, 2009 as well:

‘Strong Message’

Trichet also said the ECB has sent a “strong message” to banks to spur lending to the “real” economy with its injection of 442 billion euros ($619 billion) of one-year financing into the banking system. Banks should accelerate the clean-up of their balance sheets, he said.

“We think it’s good they’re recapitalizing,” he told journalists at the conference. “We still have a large pool that could be recapitalized. It would be appropriate to speed up this process.”

The ECB estimates that commercial banks in the euro region may have another $283 billion of bad loans to write off by the end of next year. About $365 billion of writedowns have been reported.

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