EUROPEAN Central Bank president Jean-Claude Trichet yesterday warned governments to stop getting deeper and deeper into debt while attempting to fight the economic crisis.
He said that while the massive injections of funds into European economies were the appropriate response, public finances must be brought back under control.
“There is a moment where you can’t spend anymore and you can’t accumulate any more debt. I think we are at that moment,” he said.
Provided governments continue to take the correct action, including taking control of widening deficits, there is now wide agreement the economy will be showing clear signs of recovery by 2010, the economist said.
He said measures taken to restore credit availability have restored confidence to money markets that were virtually crippled by the shock of the Lehman Brothers collapse last year:
“As far as risk, risk premiums on money markets and the functioning of the money markets are concerned, we have returned to a situation I would qualify as ‘pre-Lehmans’.”
Trichet also repeated calls for an overhaul of the rules underpinning the global economy, focusing on avoiding short-termism.