The euro area is the epicenter of the worst crisis since the end of World War II, affecting all advanced economies. This will require very responsible decision making, said for CNBC Jean-Claude Trichet, former president of the European Central Bank (ECB).
“Europeans have a special responsibility because we are the epicenter of the worst crisis since the end of World War II. This requires very responsible decisions,” said Trichet.
In his opinion, all economies go through the first major post-war adjustment. “When you look at what happened in 2007, it was the beginning of an adjustment of the advanced economies. We need to understand, it is our turn. We can’t ask the rest of the world indefinitely to fund us if we spend more than what we earn,” said former ECB chief.
Trichet also made reference to some “naive belief” of pre-crisis political leaders, including the idea that the financial and economic systems in the developed world “are stable and resistant” because they absorbed the bubble of the IT sector, the so-called “dotcom crisis” at the beginning of XXI century.
Central banks in advanced countries, including Japan and the Federal Reserve in the United States, have adopted unconventional measures to protect the economies. The Fed announced on Thursday a third round of pumping additional liquidity to the market through bond purchases – the quantitative easing – causing a rally of the stock exchanges around the world.
In Europe, the European Central Bank last week announced the long-awaited program of bond purchases from countries with financial problems. “What was done in Europe is a measure of the severity of the situation,” Trichet said. He believes that governments should use the time gained by these measures to work hard to restore their economies.
Trichet would also want to end the belief that some financial institutions are “too big to fail”, which led to many relief programs, with a significant debt burden for countries during the credit crisis.
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