Central bankers see no global recession, ready to offer liquidity
BASEL, Switzerland: Economic growth is slowing but there is no sign of a worldwide recession, according to central bankers who said Monday they had no plans for concerted action.
Central banks stood ready to provide liquidity as needed and there was no sign of deflation in developed economies, Jean-Claude Trichet, speaking as chair of talks at a Bank for International Settlements meeting, also said.
“We don’t see a recession on the cards at all but we see a slowing down in comparison to what has been observed in the recent period,” Trichet said at a news conference. “We see also downside risks in a degree of slowing down in the global economy have augmented during the recent period.”
Equity markets tumbled Monday, with European shares sinking to a 26-month low, partly in reaction to the failure over the weekend of the Group of Seven industrialized nations finance ministers to come up with more than a stated commitment to help turn the world economy around.
Fears of a Greek default have risen after senior politicians in German Chancellor Angela Merkel’s center-right coalition started talking openly about it.
The resignation of European Central Bank policymaker Juergen Stark has added to signs of division among top policymakers on how to tackle the problem while Greece has said it has cash for only a few more weeks.
Trichet said the world’s central bankers were in frequent dialogue and were united in purpose, though this would not necessarily mean they adopted identical policy actions. “We are in a permanent consultation,” he said. “We have all our responsibilities, we are not in the same universe.”
Turning to the European Central Bank, which he heads, Trichet said its decision to buy sovereign bonds had not dented its credibility. “We have a great level of credibility that we will preserve in all circumstances that we have done since the start of this crisis.”
Highlighting how precarious the situation in the eurozone is, Greece confirmed Monday that it has cash for only a few more weeks.
Trichet called on decision-makers to implement rapidly and comprehensively decisions that had already been taken, including the July 21 move to provide Greece with a second bailout.
International lenders threatened last week to withhold the sixth bailout payment of about 8 billion euros ($11 million) because of Greece’s repeated fiscal slippage. Trichet said the working assumption was that Greece would satisfy EU and IMF inspectors.
“All institutions are calling on the Greek government to fully deliver on its commitments,” Trichet said.
The Swiss franc has soared 20 percent against the euro in recent months as investors worried about the eurozone debt crisis seek a safe haven, prompting the Swiss National Bank to implement a cap on the Swiss franc against the euro to cushion the Alpine economy.
Asked whether the decision to cap the franc at 1.20 per euro had been discussed, Trichet said: “There was explanation and I would say understanding by the global economy meeting.”