ECB President: Global Imbalances One Of World's 'Main Challenges'

KIEL (Germany) - European Central Bank President Jean-Claude Trichet on Sunday raised concern about widening global imbalances after the financial crisis, calling them one of the main challenges for the global economy.

Global imbalances were blamed for contributing to and aggravating the financial crisis and recession that struck the global economy in 2008 and 2009.

"A concern is that after some partial reduction induced by the crisis, global imbalances are starting to widen again," Trichet said according to a speech text for a ceremony, in which he was awarded the Global Economy Prize 2011 by the Institute for World Economy in the northern German city of Kiel.

Such imbalances raise challenges for international monetary and fiscal cooperation, Trichet said, referring to global imbalances as "one of the main challenges facing the global economy and the world community."

Finance ministers of the world's major economies reached a fudged accord in February on how to measure such imbalances after China prevented the use of exchange rates and currency reserves as indicators.

The United States and other western countries accuse Beijing of keeping the yuan artificially undervalued to boost its exports, hence accumulating massive foreign currency reserves that they say distort the world economy.

Trichet said the euro zone does not contribute to global imbalances, pointing to projections by the International Monetary Fund which see the euro area current account broadly balanced this year and the next, up to 2015.

He pointed out that "the euro area has a significant stake in effective global re-balancing, notably through sounder domestic policies worldwide which, in turn, would contribute to global external stability."

GOVERNANCE

The euro zone is struggling with a severe debt crisis, facing its toughest test as it tries to prevent Greece defaulting.

The ECB is at odds with governments, including Germany, over a rescue package for Greece, and in particular over the terms of any moves to draw private sector lenders into the bailout operation.

Trichet criticized the currency bloc's policymaking process, saying governance was lacking.

"Governance of the economic union is insufficient," he told an audience in the northern German city of Kiel after receiving the Global Economy Prize.

"We are not responsible for governance in the economic union," he added, referring to the role played by the ECB. "In this domain we act as an adviser."

"We have very hard work today, and improving governance today is exactly what is being negotiated between the council, the ... parliament and the commission," Trichet said.

"We are pushing this trialogue ... the lessons to be drawn from the present situation are pushing us in the direction of bold changes in governance," he said.

Trichet did not explain what these changes could be, saying it is "work in progress."

(Reporting by Eva Kuehnen; Editing by David Hulmes)

Copyright 2011 Thomson Reuters. Click for Restrictions.

Comments

[Miss Muffett]

10:42 AM on 06/20/2011

Now that we have a global economy, there is no going back. Courtesy of Henry Kissinger, the U.S. pushed a global economy, for the purpose of instating our currency as the global standard for trade, without considering the implications. The real problem, as stated by the ECB President, is that we have a global economy and no global governance. This is going to be the ultimate and inevitible result - quite frankly, once we move to global governance I think we'll find that it's much easier to solve problems on a global scale instead of this current "lottery" system of who gets help and who goes without.

[shadow013]

12:03 PM on 06/20/2011

We aren't mature enough for global government, and global government will tend to apply top-down models. Suggest that first national governments apply some of Peruvian economist Hernado de Soto's principles to give third world and post-Communist countries a chance to develop. And we look at ourselves as de Soto would to make sure we don't slide into third world problems ourselves. Read "The Mystery of Capital" and see The Destruction of Economic Facts as clue to what we should be doing: http://www.businessweek.com/magazine/content/11_19/b4227060634112.htm

[Miss Muffett]

12:57 PM on 06/20/2011

Thanks for the article! I believe in bueracracy, but this really makes the case in spades. MERS will eventually have to be disassembled, as it's legally questionable to begin with but it does leave me wondering, with so much information left to gather before we can even identify where the problems are, is there time for such a solution? Information gathering on that scale would inevitably delay the discussion of the short-term solutions we'll need to get us by in the meantime. This would be a paradigm shift from the way we are currently operating. Does it need to be done? Yes! However, I think this is best applied to preventing more recessions and depressions in the future, rather than solving the current crisis. If we had started with this approach when we had the first signals of economic strain, we probably could have prevented much of the fall-out.

[laurieanichols]

09:19 AM on 06/20/2011

China is having its own issues, they are having tremendous problems with climate change, over-consumption of fossil fuels, increasing food prices, a serious real estate bubble, middle-class problems, etc. So I don't think that China is going to accept the other nations demands over currency manipulation and reserves. I am not defending them, I am simply stating their reality which is not to our advantage. We, in this country, gambled very unwisely in the 1970's, with our response to the oil shortage and the emergence of OPEC, free trade and globalization. We are now caught once again without a coherent strategy and the stakes are unfortunately higher. These problems are real and there are solutions out there, we just need to find the political will and courage to implement them.

[shadow013]

10:22 AM on 06/20/2011

With all the supposed concern about pollution, it continues to shock me that we'll pay China to make consumer products the dirty way when making them here would have so much less negative environmental impact. On "climate change" we'll have to see how the recently verified changes in solar cycles impacts how warm we are. Does the sun have anything to do with heating our planet? Vostock ice cores show that temperature change leads CO2 change, not the other way around. But why?

[jcaunter]

05:58 AM on 06/20/2011

That may be one of the greatest challenges facing the world, but the absolute greatest challenge the world faces is getting rid of central banking once and for all, for the love of humanity.

[Dangerous Dan]

03:41 AM on 06/20/2011

We must redistribute wealth, and since America is in the top 2% of global wealth, the US should bail out the less fortunate.

The US standard of living is too high by 60%

[First Blast]

03:13 AM on 06/20/2011

Should we be concerned about the influence of sovereign wealth funds?

[womenforaction]

12:38 AM on 06/20/2011

I guess we can only manipulate a financial system for so long. These fiscal investments in other countries play a huge part. An overseas private company that invests in other countries has an spiraling effect if that country disintegrates. I mean it has happened with our very own Wall Street Banks. They have invested in Greece. And they are probably chewing on their fingernails as we speak. And if we have become super-dependent on outsourcing and trading, another country's disaster has now become our disaster. It’s just a matter of time. And it’s not looking good.

[Michael5555]

04:09 AM on 06/20/2011

I hope the investors that invested in Greece lose it all, that would teach them for being so greedy and charging them such high inteest rates and enslaving a nation, but they won't, even if Greece defaults they will still find a way to stick it to the people.

[whitemale08]

12:27 AM on 06/20/2011

One wonders what Trichet is smoking when he talks likes this.

Fact is, the eurozone is hopelessly bankrupt and no amount of bail outs and 'money printing' is going to prevent the ongoing financial collapse, that started in 2008, from breakin up the EU.

He can talk this nonsense all he wants, the bottom line is, that British TBTF, like HSBC and European TBTF, like Deutchebank etc. having nothing but trillions of worthless derivatives.


As each country defaults or wises up to the fact that the 'debt' was a swindle, the derivatives on the balance sheets of these banks will wither to O (ZERO); plunging them into bankruptcy.

The world can get ahead of this collapsing house-of-cards, by adopting a universal Glass-Steagall so Wall Street/City of London can eat the vomit of derivatives it threw-up on taxpayers.

[rotorhead1871]

11:19 PM on 06/19/2011

this financial hocus pocus is better than a three ring circus.....what a crock.

[msjimmied]

09:07 PM on 06/19/2011

No, the main challenge for bankers is to convince people to make them whole. What the people are rioting about is pushing the debt on to them. No money for Social Security and old folks? Really?

"If there was a silver lining to all this, it has been to demonstrate that if the Treasury and Federal Reserve can create $13 trillion of public obligations – money – electronically on computer keyboards, there really is no Social Security problem at all, no Medicare shortfall, no inability of the American government to rebuild the nation’s infrastructure. "

http://neweconomicperspectives.blogspot.com/2011/06/free-money-creation-to-bail-out.html

[AmySeow]

09:07 PM on 06/19/2011

Really??? They just worked this one out, huh?

[mashtoe]

08:28 PM on 06/19/2011

Notice how market forces are never allowed to work naturally when the banks profits are involved. The banks executives see nothing wrong with using government authority to get their way. The only people who aren't allowed to organize are working people.
What we have today is a type of corporate communism. Or state capitalism. Whatever you call it free markets have nothing to do with our economy ...unless your a worker seeking a raise. Then you only get paid market rate (of course they ignore work visas, illegal immigration, and free trade with communist China).

[TheFriendlyAtheist]

08:49 PM on 06/19/2011

Whenever the mechanisms of government, the executive branch, the legislative branch, the judicial branch, and the armed forces; join with the richest and most powerful elements of the private sector to keep the vast majority of the population in subjugation to those same rich and powerful elements of society; then it is right and just; indeed, obligatory, for the people of that nation to rise up in opposition to the unjust and tyrannical government.

[Michael5555]

04:01 AM on 06/20/2011

Very true, but part of that " rising up " is people also saying that as a human being a person should only have so much wealth. And as a human race there isn't either the courage, or, the ability for people to be able to look at life in general and say, " life isn't all about money and it's not fair that a few some have so much while others have so little ", without being afraid to be called a socialist.

And it's not just taxing the rich, it goes far morally deeper than that, and really if you think about it, the real problem is a few wanting so much.

[shadow013]

07:17 PM on 06/19/2011

First solve the imbalances WITHIN countries. Apply Peruvian economist Hernado de Soto's principles from "The Mystery of Capitalism" to allow individuals to prosper within their own economies. Strengthen each link in the chain from within first, then the whole chain is stronger.

[mashtoe]

08:45 PM on 06/19/2011

But that would be a system that Wall Street can't easily rig. If we let markets work in a country then those who make things will get rewarded while people who make nothing (bankers) will have boring jobs.

The bankers and the government prefer to have a chaotic system that requires more and more interference from the government and with the banks leading the way.

[Veri]

06:28 PM on 06/19/2011

Global imbalances, in part, aggravated by globalisation. The commonalities shared by almost all economic crisis include the free flow of capital and rampant speculation - especially land speculation. Sound familar? Of course it does.

[logicanada]

04:07 PM on 06/19/2011

Like South American countries, the ECB should grow some balls and refuse any US run Global Systems, including the IMF.

[falco]

03:46 PM on 06/19/2011

So, instead of the IMF negotiating as usual - a pile of money in one hand (to be paid back whether able or not - your infrastructure will do) and a gun in the other, I guess they would like to by-pass that process, cut out the middle man, and just own the world without the hassle of pretenses.