Trichet Defends ECB Against Criticism From Sarkozy (Update2)
By Simon Kennedy and Sandrine Rastello
Sept. 15 (Bloomberg) -- President Jean-Claude Trichet defended his European Central Bank against criticism from French leader Nicolas Sarkozy that the ECB botched its response to turbulence in financial markets.
The two Frenchmen embarked upon another war of words after Le Monde reported that Sarkozy yesterday called it ``curious'' how the ECB had not cut interest rates at the same time as it ``facilitated speculators'' by pumping money markets with cash.
``Everybody knows that we are not facilitating in any respect those who behave improperly,'' Trichet told reporters today after a meeting of European finance ministers and central bankers in Oporto, Portugal. ``On the contrary, we are protecting those who behave properly against the turbulence and the drawbacks caused by those who behaved improperly.''
Sarkozy has repeatedly attacked Trichet since becoming French president in May, arguing that the ECB's eight rate increases since late 2005 have driven the euro to a record high, threatening European exports. Trichet has responded by stressing that the central bank is independent and cannot be lobbied by politicians.
A surge in the international cost of credit sparked by a collapse in the U.S. market for subprime mortgages led the ECB to leave its benchmark interest rate unchanged at 4 percent last week while the need to lubricate the banking system has prompted it to add a total of 253.5 billion euros ($352 billion) to the market since Aug. 9. At the same time, Trichet has hinted rates may rise again given that ``upside risks'' remain to inflation.
`Extremely Important'
``We are protecting our fellow citizens from being touched in their purchasing power,'' Trichet said today. ``Price stability is extremely important.''
Sarkozy said that such an approach makes ``work harder for entrepreneurs,'' according to Le Monde.
The ECB president drew laughter from reporters when he noted how Sarkozy had last week sought to take credit for the ECB's decision to leave rates unchanged, arguing it was in response to his criticism.
``Before, President Sarkozy said he approved of what we did and he thought it was due to his influence,'' Trichet said, adding that he hadn't ``had the time'' to read Sarkozy's latest comments.
ECB council member Axel Weber was harsher in his rebuke of the French leader. ``The news value of the criticism by the French president is zero, it's no news,'' Weber said in Oporto. ``The influence of such statements on the behavior of the ECB's governing council is also zero. We do what's necessary and what's necessary is decided by us.''
`Perfectly Right'
French Finance Minister Christine Lagarde disagreed, telling reporters it is ``perfectly right'' for her boss to discuss interest rates ``as there has obviously been volatility and exchange-rate variations on the markets since the last ECB board meeting.''
Other ministers appeared to side with Trichet, who said he had heard ``very positive appreciation'' in the two days of talks in Portugal. ``Who is in charge of monetary policy? The rulebook is very clear: It's the council of the European Central Bank,'' Spanish Economy Minister Pedro Solbes said. Germany's Peer Steinbrueck said Sarkozy is ``running into a vacuum'' because the ``continuously perpetuated issue of the ECB's independence is a done deal, namely in favor of the ECB.''
`Ongoing Turbulence'
The Portugal talks concluded with officials commissioning a review of whether markets should be subjected to more regulations, while expressing confidence that their economy's expansion will endure. ``Despite the ongoing turbulence in markets, the prospects for growth are strong,'' said Portuguese Finance Minister Fernando Teixeira dos Santos, who chaired the meeting.
The ministers promised there would be no rush to impose new rules on credit-rating agencies and banks. They also opposed efforts to establish rules on who pays for bank bailouts, rejecting a call to commit public funds for future financial crises.
Finance ministers gave verbal support to the ECB's plan to create a system for clearing and settling securities trades, a project they had criticized in February partly over insufficient consultation with affected parties. Trichet said the system could begin operating in 2013.
Sarkozy also rebuked Luxembourg's Jean-Claude Juncker, the head of a panel of finance ministers from the euro area, who yesterday said France wasn't doing enough to cut its budget deficit. ``What initiative has he taken?'' Sarkozy was quoted as saying in the newspaper.
`Further Efforts'
EU Monetary Affairs Commissioner Joaquin Almunia said in Oporto that Juncker deserved credit for his work. Juncker declined to comment. Almunia said France may fail to reach its deficit targets of 2.4 percent of gross domestic product this year and 2.3 percent in 2008 unless ``further efforts'' are made.
The French campaign against higher borrowing costs has taken on new urgency after second-quarter economic growth slowed and the Organization for Economic Cooperation and Development cut its forecast for expansion in France, the euro region's second-biggest economy. France is set to lag behind its neighbors for a second year in 2007.
The rift between Sarkozy and Trichet has its roots in French politics more than a decade ago when as head of the Bank of France, Trichet sparred with then-Budget Minister Sarkozy over budget-deficit targets. It deepened when Sarkozy made the ECB a target during his election campaign.
The French president said in July that the two policy- makers are not ``on the same wavelength,'' while Trichet said the same month that France's demand for governments to have a greater voice in setting rates is ``not acceptable.''
To contact the reporters on this story: Simon Kennedy in Oporto at
skennedy4@bloomberg.net ; Sandrine Rastello in Oporto at
srastello@bloomberg.net .
Last Updated: September 15, 2007 11:57 EDT
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