Exclusive Trichet interview: It is time for banks to start lending again
Q: Governments are finding themselves under increasing pressure on finances. Financial stability criteria are being breached. Often temporary breaches become permanent. Does this concern you?
A: We have a simple position, namely that it is important to respect the rules of the Stability and Growth Pact. The rules were precisely changed a few years ago to take into account exceptional circumstances. So let’s stick to the rules. Within these rules there are some governments that have room for manoeuvre, others that have less, some that have none. But one needs to look at the situation not just through the grid provided by the rules, but also through the grid of economic and financial reason. Some governments have no difficulty financing their deficits, others do. This manifests itself in the spreads some pay over and above what others pay. Sustainability of public finances is also part of confidence building.
You also need to take into account that in Europe the play of the automatic stabilisers are important when the business cycle is going downwards. Public spending as a percentage of GDP is higher in Europe than the US.