ECB Chairman Believes EU Economy ‘Sound’

European Central Bank President Jean-Claude Trichet has suggested that there is “no reason to doubt” the European economy and its current health, after growth was revised downwards by the European Commission to reflect a perceived slowdown.

After both France and Germany announced slower than expected growth over the second quarter of 2007, and in the wake of significant market unrest across Europe as a result of the sub-prime situation, the European Commission announced yesterday that it was revising growth downwards by a 0.1% point on the year, reflecting a downturn in growth from last year’s figures.

Mr Trichet was also quick to point out that credit rating agencies had a strong role to play in the ongoing credit crisis around the world, citing a conflict of interests between rating bank creditworthiness and accepting fees from the same institutions.

When quizzed about recent statements from Alan Greenspan, formerly Chairman of the Federal Reserve, which indicated that the US was in for a recession, Trichet dismissed the applicability of the US situation to the Eurozone economy, stating that recession is ‘not appropriate’ to describe the EU economy, and that on a fundamental level the thirteen-nation Eurozone was economically ‘sound’.

Much of the market instability has been derived as a direct consequence of the US sub-prime lending sector. As a result of growing credit fears amidst a tightening liquidity environment, markets have been thrown into chaos with business investment and consumer borrowing significantly down. As a consequence, many global economies have opted to sit on the fence with economic policy until the situation is calmed, at the expense of their own domestic economies.

Whilst Mr Trichet suggested that recession was not around the corner for the European economy, he was quick to reiterate that at present, markets remain uncertain and that the extent of externalities from the US was interfering with the EU’s ability to regulate its own economy.

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