LAUSANNE, Sept 22: European Central Bank chief Jean-Claude Trichet on Friday reaffirmed that the independence of central banks was absolutely essential to ensure their credibility amid renewed political pressure over the ECB’s monetary policy.
His comments at a public debate in Switzerland came as the euro raced to a record high of $1.4120 on Friday, and eurozone political leaders signalled their interest in halting its cycle of hikes in interest rates.
“There is a consensus among central banks to consider that independence is absolutely essential, because its gives (them) credibility when faced with investors and savers in their own economy and in the rest of the world, Trichet said in the debate on the euro.
French President Nicolas Sarkozy on Thursday reaffirmed his belief in the ECB’s independence, but he implied that the bank should follow the US Federal reserve in lowering interest rates in response to recent turmoil on financial markets.
When the American federal bank lowers its rates, everything gets back on track, Sarkozy said. “When we don’t lower ours, we dig ourselves in deeper.
There is a small problem there.Sarkozy is also a long-standing critic of the ECB’s exchange rate policy, saying it harms exports and economic growth in the 13 national eurozone, which includes France.
Trichet argued Friday that the independence and credibility of the ECB allowed eurozone governments to enjoy cheaper borrowing on money markets.
If we weren’t independent, I’d let you calculate the risk premiums that savers and investors around the world would ask for, he said.
Asked about the strength of the euro, Trichet highlighted US administration statements praising the strength of the dollar as being in the interest of the United States.Trichet also pronounced the euro, which was introduced as a paper currency in 2002, a very big success, during the debate with Swiss central bank chief Jean-Pierre Roth.
That is absolutely indisputable, Trichet remarked.
The Frankfurt-based bank’s independence is enshrined in the European Union’s Treaty of Maastricht, and any changes would at the very least require the agreement of all eurozone partners.
Late Thursday, German Chancellor Angela Merkel leapt to the ECB’s defense, saying: The whole government including myself believes in the independence of the ECB. On Friday, German Finance Minister Peer Steinbrueck issued a statement saying: Anybody who wants Europe to have a successful monetary policy based on price stability will not call into question the independence of the ECB and the euro.
Spanish Prime Minister Jose Luis Rodriguez Zapatero said on Friday that he felt the round of interest rate hikes by the ECB had reached their peak.
Zapatero, who faces a general election in March 2008, said many Spanish families had felt growing financial pressure since the majority of their mortgages were set with variable rates.
Spain has experienced a massive housing boom in recent years.
The ECB left its main interest rate unchanged at 4.0 per cent at its monthly meeting on September 6 amid continuing global credit market volatility, after series of increases.
However, the US Federal Reserve cut its base federal funds rate by half a point to 4.75 per cent on Tuesday to give the ailing US economy a shot in the arm.
Trichet has said that any change in eurozone interest rates would depend on calm returning to international markets.
Article 107 of the EU’s Maastricht treaty states that neither the ECB, nor a national central bank, nor any member of their decision-making bodies shall seek or take instructions from community institutions or bodies, from any government of a member state or from any other body.
The community institutions and bodies and the governments of the member states undertake to respect this principle and not to seek to influence the members of the decision-making bodies of the ECB or of the national central banks in the performance of their tasks, it adds.—AFP