Thursday, July 28, 2011

Jean-Claude Trichet, President of the ECB, English translation of the full interview given to Patrick Bonazza, Le Point, on 22 July 2011, published 27 July 2011

''..Is speculation the big bad wolf that will devour the euro?
The euro itself is not in question. The euro is a very credible currency that has done a remarkable job of ensuring price stability. Also, it is issued in an economic area for which the overall results are sound compared with other ones. As far as government or corporate bonds are concerned, the financial markets are complex and very sophisticated. Some investors have confidence (or not) and invest (or not), and others can forward buy or sell and speculate up or down. Market participants are thus motivated by varying degrees of confidence, as well as by fear and greed. When serious crises arise, such as the one that we have been in since 2007-08, they expose weaknesses as sure as x-rays show up the skeleton inside the body. A good way of not letting speculation take hold is to identify ones own weaknesses upfront and to correct them. In the years that preceded the crisis, countries in particular, had a false sense of security. Unfortunately, this sentiment was not only shared by some Europeans, but also by the whole of the international community, not to mention many economists. Once again, the lesson that we Europeans must draw from this is to strengthen the governance and monitoring of economic and fiscal policies. That does not mean to say that the functioning of the financial markets does not need to be substantially improved. At the moment, the key word for all industrialised countries is “confidence”.
Yes, but it is possible to speculate on whether Greece will default.
Such a speculation would be a sure-fire way of losing money given the decisions taken last Thursday. And let me say again, the euro, as a currency, is sound and credible, and is not affected by the pressures on sovereign risk..

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