Responding to questions from MEPs about the recent financial turmoil, ECB chief Jean-Claude Trichet and Commissioners McCreevy and Almunia highlighted the need to improve the transparency of financial markets rather than taking further regulatory action in order to avert similar crises in the future.
Responding to calls from a number of MEPs for further regulation of financial markets (EURACTIV 06/09/07), ECB President Jean-Claude Trichet and Internal Market and Economic Affairs Commissioners Charlie McCreevy and Joaquín Almunia stressed that greater transparency regarding increasingly complex financial instruments and better risk-management by banks and financial instruments would suffice to restore confidence in the money markets.
The sooner confidence is restored, the less impact the crisis would have on the EU’s real economy, stressed Almunia.
He gave MEPs the latest forecasts for economic growth, which the Commission has cut slightly – by 0.1% – compared with previous predictions in May. He explained that ‘downside risks’ had increased with the financial turmoil but that the fundamentals of the EU economy remained sound.
Commenting on the ECB’s decision to leave interest rates unchanged (EURACTIV 07/09/07), Trichet stressed that “risks to price stability remain on the upside over the medium term”, suggesting that a further rate rise is still on the cards once financial markets have calmed down.
When one MEP pointed to the apparent paradox of injecting large amounts of cash into the markets to ease tensions and facilitate short-term borrowing operations while also leaving the door open to further rises in interest rates, Trichet responded that the ECB’s primary mandate of maintaining price stability had to be kept separate from its responsibility for ensuring that money markets function properly.
“If we were blurring these responsibilities and if I was telling you that because of the short-term money market turbulences we put into question our responsibility of delivering price stability in two years time…we would deteriorate the present situation of the markets,” he said.