The European Central Bank has called time on its role of “lender of last resort,” saying it has reached the limit of what it can do to help the EU deal with its debt crisis. It is now time for governments to step in.
Letting EU governments off their responsibilities to prop up the debt-stricken Euro would be a “recipe for failure”. That’s according to Jean-Claude Trichet, head of the Euro’s “lender of last resort”, who has effectively thrown in the towel.
“The ECB has done all it could”, he told the Financial Times, “governments are the last backstop”.
The outgoing president of the ECB, Jean-Claude Trichet, was interviewed before completing his term in office.
The interview, published ahead of a meeting of G20 finance ministers in Paris, came as a clear indication that the ECB’s patience is running out.
Trichet’s statement echoes the view of the Russian Prime Minister, who has said that Europe’s governments could solve the problem if they wanted to.
“The crisis is more of a political than a financial issue. According to different estimates, something between 1 to 1.5 trillion dollars is needed. The number is big, but the Eurozone can handle it,” Vladimir Putin said in an interview with Chinese state broadcaster CCTV during his visit to Beijing. “It’s a political issue because in order to gather those resources the leading European countries must offer a shoulder to those in trouble, and that takes political courage.”
“The governments, however, have an instrument in place,” the Financial Times quotes Trichet as saying: “the 440-billion-euro European Financial Stability Facility which could be leveraged to provide a firewall.”
However, the departing head of the ECB, whose term comes to an end at the end of October, called the crisis “a historical event of the first magnitude, the worst crisis since the Second World War.” But he clearly indicated that it is primarily a crisis of governance.
“All advanced economies are being x-rayed by the present crisis and revealing their skeletons and the weaknesses in their skeletons. It’s true for all of us – for Japan, for the US, for Europeans,” he said. “For Europe,” the Financial Times quotes him as saying, “The x–rays have exposed, not weaknesses in the euro as a currency (the ECB’s president insists its future is “evidently not in danger”) but in the Eurozone’s governance opinions.”
Trichet has joined finance ministers and central bankers from the world’s major economies, who are meeting on Friday and Saturday in the French capital for talks on the ongoing crisis.
Elsewhere, ordinary people are getting ready to unite for a global day of action on October 15, spearheaded by the Occupy Wall Street movement against corporate greed and austerity measures.
The call is expected to get a loud response in Portugal, where the prime minister has warned of more pay cuts and tax rises to tackle the country’s deficit. It is also likely to be embraced in Spain, which has been the latest victim of a credit downgrade, with ratings agency Standard and Poor’s cutting its score by one notch.