The European Central Bank has warned that the world economy is still in the grip of a "very serious market correction" and risks repeating the inflation debacle of the early 1970s if global authorities respond by slashing interest rates too soon.Jean-Claude Trichet, the ECB's president, said the credit crisis is still extending its shadow over the economy, but cautioned against any easy solution given the cocktail of threatening forces that have come together. ... "We have this accumulation of the oil shock, the food and agro-products shock. In the first oil shock, when we took the wrong decision, we enshrined high inflation, and we created mass unemployment," he said.
Jean-Claude Trichet, the ECB's president, said the credit crisis is still extending its shadow over the economy, but cautioned against any easy solution given the cocktail of threatening forces that have come together.
...
"We have this accumulation of the oil shock, the food and agro-products shock. In the first oil shock, when we took the wrong decision, we enshrined high inflation, and we created mass unemployment," he said.
¨In the first oil shock, when we took the wrong decision, we enshrined high inflation, and we created mass unemployment," he said.
So it wasn't high wage demands after all?
Now he tells us.
guardian.co.uk: Worst of credit crunch 'may be ahead'
In an interview with the BBC, Trichet said that the combination of an oil shock with rises in food prices made these "challenging times". "In the first oil shock when we took the wrong decision, embarking on what I call second-round effects, we enshrined a high level of inflation," he said. "And we created ... mass unemployment in Europe."Price stability and credibility in price stability in the medium term is the best way to have a high level of sustainable growth and sustainable job creation."
"In the first oil shock when we took the wrong decision, embarking on what I call second-round effects, we enshrined a high level of inflation," he said. "And we created ... mass unemployment in Europe.
"Price stability and credibility in price stability in the medium term is the best way to have a high level of sustainable growth and sustainable job creation."
BBC NEWS: The Reporters - Robert Peston
What if the Bank of England were not to bear down on inflation in the face of the upward pressure from rising global energy and food prices? What if it were to respond to popular, corporate and political calls for cuts in interest rates, to give some oomph to an economy slowed down by the credit crunch?In a worldwide trawl of bankers and economists - which I made in preparing a documentary to be broadcast at 8pm tonight on Radio 4 ("Power Failure at the Central Bank") - a compelling case for not cutting interest rates came from across the Channel, from the veteran public official who is arguably the most respected central banker in the world right now, Jean-Claude Trichet.
What if it were to respond to popular, corporate and political calls for cuts in interest rates, to give some oomph to an economy slowed down by the credit crunch?
In a worldwide trawl of bankers and economists - which I made in preparing a documentary to be broadcast at 8pm tonight on Radio 4 ("Power Failure at the Central Bank") - a compelling case for not cutting interest rates came from across the Channel, from the veteran public official who is arguably the most respected central banker in the world right now, Jean-Claude Trichet.
Mass unemployment was created in the first aggressive round of 'reform.' The energy crunch provided a good excuse for this.
Also - take a look at UK's rate history.
Where are the aggressive rate cuts he claims were happening then?
All I can see in Peston's summary is the same-old same-old nonsense about wage demands magically destroying 'competitiveness' and creating econo-doom.
Or to be more precise, he argued that the current rise in energy and food prices is comparable to the oil-price shock of the early 1970s. And he insisted that the failure of most European economies back then to suffer the short term pain of tighter monetary policy, higher interest rates, led to inflationary wage settlements that undermined economic competitiveness. "Before 1973 and 1974, there was everywhere in Europe full employment," he told me. "It is after the absence of sufficient lucidity in analysing what was happening after the first oil shock, trying to protect ourselves from the first oil shock and not understanding that we had a real transfer of resources associated with the first oil shock, all that created mass unemployment. "And we are still fighting against unemployment which is at a level that is not satisfactory in the euro area and which is the legacy of these mistakes in the first oil shock." Or to put it another way: cut rates and risk long-term, serious damage to all our prosperity.
"Before 1973 and 1974, there was everywhere in Europe full employment," he told me. "It is after the absence of sufficient lucidity in analysing what was happening after the first oil shock, trying to protect ourselves from the first oil shock and not understanding that we had a real transfer of resources associated with the first oil shock, all that created mass unemployment.
"And we are still fighting against unemployment which is at a level that is not satisfactory in the euro area and which is the legacy of these mistakes in the first oil shock."
Or to put it another way: cut rates and risk long-term, serious damage to all our prosperity.
What Trichet fears is what he calls "second-round effects", such as wages being set at levels that assume inflation will not fall - which could precipitate endemic inflation, a debilitating virus that would be hard to shake off.
