FRANKFURT (MNI) – The European Central Bank observes rises in
inflation with concern and is carefully monitoring current developments,
ECB President Jean-Claude Trichet said in a newspaper interview
published over the weekend.

Trichet told the German daily Bild that there is “no doubt” the
common currency will still be around in 20 years, but he stressed that
all member states must ensure fiscal order.

The euro is “credible and stable” and we are not witnessing a
crisis of the euro, but rather one “related to the public finances of a
number of euro area countries,” the ECB president said. Therefore, “all
governments have to put their finances in order, and above all those
governments and countries that have lived well beyond their means in the
past.”

Against the backdrop of December’s spike in Eurozone inflation to a
two-year high of 2.2%, Trichet said, “we are always concerned if
inflation rises and are following developments very closely.”

However, he noted, “the figures for December can be accounted for,
above all, by rising energy prices.” He added that the data on the
average rate of inflation before and since the euro “speak for
themselves.”

Expanding on this theme in a separate French radio interview
Sunday, Trichet said, “What always counts for us are not the rising
prices of raw materials or energy, which cause a hump in the level of
inflation for a certain period.”

“What counts is to avoid what we call ‘second-round effects’,” he
explained. What counts is that “this increase in inflation remain
temporary and not jeopardize medium-term inflation by driving up all
prices.”

“All our citizens understand well that we cannot say that oil
prices will be lower than they are,” he said. “But all our citizens
understand that the central bank is there to prevent an acceleration in
overall prices.”

Trichet, emphasized as he had in his press conference last
Thursday, that the ECB is prepared and determined to take the necessary
decisions — “even if they are difficult to take” — to assure price
stability over the medium term. “Everyone knows this and that is why
inflation expectations are, as we say, ‘well anchored,'” Trichet said.

Trichet suggested that the ECB would not be deterred from necessary
rate moves by that fact that growth in many Eurozone countries remains
sluggish. By assuring its credibility, the ECB would also assure that
medium- and long-term market interest rates remain at levels that would
permit investment and growth in those economies, he explained.

“That’s why there is no contradiction between our own task — which
is to assure price stability by taking the necessary decisions — and
growth and job creation,” he said.

Asked whether there was a risk of higher interest rates this year,
Trichet replied indirectly: “There is a risk that does not exist: it’s
that inflation expectations for the medium term would be destabilized.”

Asked by Bild whether other countries would follow Ireland under
the EU rescue umbrella, Trichet merely urged again that all countries
get their fiscal affairs in order as “this is the best way for them to
win back their creditworthiness.”

It is “often forgotten” that the euro area’s combined budget
deficit will be half as high as that of the U.S. or Japan in 2011, he
observed. Still, “this is no time for any complacency.” The ECB expects
Eurozone governments to make “enormous efforts” to reduce their debt,
Trichet said.

The rescue facility should be enhanced because an effective
mechanism is needed by governments to ensure financial stability, the
ECB chief said.

To the suggestion that a Greek bankruptcy might be unavoidable,
Trichet observed that Greece “has taken measures within a strong
programme negotiated with the European Commission and the International
Monetary Fund. We expect Greece to implement these measures to the
letter.”

It is right for Germans to be “fiercely against inflation,” Trichet
said, but neither they nor their fellow euro area citizens need worry,
he asserted: “We have delivered and we will deliver price stability.”

In the radio interview, Trichet dismissed worries that China’s
recent interest in the sovereign debt of Eurozone countries facing
market pressure might be a strategy to expand its economic influence in
Europe.

“All investments, including of course those from China, are welcome
in the Eurozone,” he said.

Trichet also rejected the notion that either Germany or France, as
the largest economies in the Eurozone, could stake a claim on the
presidency of the ECB. He stressed that all Governing Council members
represent the Eurozone in its entirety and that it was up to the
governments to select his successor.

–Frankfurt bureau tel.: +49-69-720142. Email: dbarwick@marketnews.com

[TOPICS: M$X$$$,M$G$$$,M$$EC$,MT$$$$,MGX$$$,M$$CR$]