AIX-EN-PROVENCE, France (MNI) – The Eurozone has the capacity not
only to overcome the current crisis but also to prosper, if it learns
from its past errors and draws on the creativity of its entrepreneurs,
ECB President Jean-Claude Trichet said Saturday.

The “evident” lesson of the crisis is “certainly the need to
reinforce governance,” Trichet told a conference here.

The problems of the Eurozone economy are no greater today than
those of many other advanced nations and in some ways smaller, he
argued, noting that its current account is in balance and its public
debt ratio less than half that of the US or Japan. The macro situation
is “relatively correct.”

However, there are “serious problems” in some individual countries,
and the “essential” challenge is to manage the overall situation,
Trichet explained.

The heterogeneity across Eurozone economies in terms of growth,
inflation, unemployment and unit labor costs is no greater than in the
US; but it is an “illusion” to believe that a common currency alone will
assure convergence over time, he said. This is another “argument for
reinforcing governance.”

Had governments applied the fiscal rules of the Stability Pact
rigorously before the crisis and listened to the warnings of the ECB
about unsustainable imbalances, they would no doubt be in a “better
situation” today, he said, once again citing Germany as a model for its
timely structural reforms to restore competitiveness and its serious
fiscal policy.

Trichet acknowledged that the challenge for Europe’s leaders is
“very difficult” and will require “as lucid as possible” public
communication to overcome the “very great problem of governance.” Still,
these leaders demonstrated their capacity to react swiftly to the
financial “tsunami” before it unfolded its full furor, by mobilizing the
equivalent of 25% of GDP in order to mitigate its consequences, he
noted.

The ECB has urged them “to go as far as possible” in enhancing
macro surveillance and instituting automatic sanctions for fiscal
waywards, he reminded. The European Parliament is also “pushing in this
direction,” but the European Council of government leaders is still
hesitant, despite the support of many smaller countries.

These are “today’s” tasks, he said. For “tomorrow” and “after
tomorrow”, Eurozone leaders should consider further-reaching
institutional reforms that would require revisions to the founding
treaty of the Eurozone, he urged.

Trichet did not dispair at the widespread “scepticism” in the
public over Europe, noting that scepticism toward national leaders is
even greater. From the very outset, he had “always, always, always
observed scepticism” over the “extremely ambitious” project of monetary
union. Despite its weaknesses, “historically it is an absolutely
prodigious success,” he exclaimed.

The Eurozone’s track record on growth and job creation compares
favorably with that of the US, he reiterated. Nevertheless, economic
growth is “very insufficient” and potential growth must be bolstered
through structural reforms.

One source of future growth could be the “imagination and
creativity” of Europe’s entrepreneurs, especially at the local level,
Trichet argued. “Everything is localized.”

The ECB’s contribution to the Europe of the future is to be “an
anchor of stability and confidence,” he pledged.

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