China Finance: What needs to be done to meet the challenges to the credibility of Euro posed by persistent dispersions of inflation, current account deficit and public finance among the member economies? Trichet: The first 10 years of the euro has brought low levels of inflation overall in the euro area, lower than the levels in the individual countries before. The existing differences are no bigger than if you compare differences in price levels, for example, between various states in the United States, which is as you know similar in size to the euro area. The single currency also enhanced price transparency, increased trade, and promoted economic and financial integration within the euro area and with the rest of the world. As for public finances, the Stability and Growth Pact was created precisely to substitute for a more uniform fiscal arm of the euro area. As you are aware, there was an agreement reached in the EU late last year to provide fiscal stimulus corresponding to the current economic slowdown, however, on behalf of the Governing Council I reiterated several times that these packages should be provided by countries only if they have the leeway granted in the SGP. China Finance: In view of the increasing interests of adopting Euro from non-member countries in times of financial turmoils, how do you see the need to balance between the expansion of the Eurozone and maintaining its stability? Trichet: As said before, the financial crisis certainly reemphasised the value of belonging to a large, single currency area.
And in such a case, when confidence is lacking, additional public expenditure will not have a positive effect on growth. On the second question, following an episode in which the pricing of risks was, in general, too low, markets now have a tendency to overvalue risks. But it does not affect the euro as a currency. Rather, it is clear that the single currency has proved to be an anchor of confidence and stability during this crisis. If you think back to the European currency turbulence and its consequences in 1992 and 1993, you can imagine what consequences the crisis of recent months would have had for the euro area without the euro – both on the interest rate markets and on the exchange markets. China Finance: What challenges do the US quantitative easing policy pose for the Euro area? What's your assessment on the need for coordination on economic and monetary policies between the major economies in bringing about an early recovery of the global economy? Trichet: I believe that all central banks are doing what is necessary for the economic area they are responsible for and responding to the requirements of the specific conditions. I do not see the point in comparing one central bank’s actions with the other. As I said before, the ECB’s open market operations and collateral framework of today are already in a “nonstandard” mode and its measures can be interpreted as a way of additional “non standard risk taking”.