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EURO-ZONE’S TOP CENTRAL BANKER SAYS ECONOMY WOULD HAVE SLOWED WITHOUT FINANCIAL CRISIS

Posted by Gilmour Poincaree on December 9, 2008

Last update: December 8, 2008 – 10:58 AM

by Aoife White – Associated Press

PUBLISHED BY ‘THE STAR TRIBUNE’ (USA)

BRUSSELS, Belgium – Don’t blame the financial crisis for the current economic downturn, says the euro-zone’s top central banker.

European Central Bank President Jean-Claude Trichet said Monday the slowdown was inevitable after high growth in recent years and a spike in oil prices that sent inflation soaring and braked business activity and household spending.

“Even without the financial crisis we would have had a slowing down in the economy after long years of very active growth at the global level and after the oil shocks that we had to cope with,” Trichet told the European Parliament’s economy committee in Brussels.

“That had a very powerful depressive effect on every economy in the world,” he said.

Oil prices hit a new record of $147 a barrel in July as demand for energy grew rapidly in emerging economies such as China and Brazil while suppliers remained tight. Prices have since sunk by two-thirds to hit a four-year low of $40.50 on Friday on worries of a world downturn.

The United States entered a recession last December, joined by the 15 nations that use the euro in the second quarter. Job losses are mounting and will likely rise further in coming months.

Trichet acknowledged that “exceptional tensions in the financial sphere” that froze bank lending had worsened the downturn.

He said the euro-zone central bank expects the global economy and “very sluggish” household demand to remain weak in the next few quarters — warning that a fragile recovery could be damaged by worse financial turmoil, protectionism and sudden changes to global account deficits.

He called on European governments to move fast to restore confidence in the banking sector by pushing forward with banking rescue plans that should ease lending. France said Monday it would start a recapitalization program within days after it won EU approval to give out large subsidies to banks.

Trichet did not give any hint of a future interest rate cut that would bring euro borrowing costs below the current 2.5 percent. The ECB reduced rates from 3.25 percent last week as falling inflation gave it more room to stoke growth in a slowing economy.

Economists speculate that the ECB may cut rates again in January to 2 percent. That would match current rates charged by the Bank of England and Sweden’s Riksbank.

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PUBLISHED BY ‘THE STAR TRIBUNE’ (USA)

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