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US recession is biggest risk for Europe, says Trichet
[FRANKFURT] A recession in the US is the "biggest risk" for Europe and would - if it materialises - require bold action from the central bank and other authorities, says Jean-Claude Trichet.
Europe might have its own challenges and many structural reforms to implement, but "we shouldn't overdo the endogenous risks that exist," the former European Central Bank president told an audience in Alpbach, Austria, on Thursday. "I would really concentrate as much as possible on the fact that if there's a recession in the US, we will have to do a lot of things that put the other partners at stake."
While risks of a contraction of the US economy lately have increased lately, most economists still predict growth of around 2 per cent this year as robust employment and continued wage gains underpin private consumption. That's unless companies stop investing and lay off workers in response to trade-related uncertainty.
Mr Trichet argued that growth in the US has been "quite remarkable." Even so, it can't last forever. "The cycle exists, at some point we will see a slowing down and a recession in the US," and Europe has to "prepare in the best fashion possible."
At the heart of the continent's problem is its openness to trade.
"We have to be aware of the fact that Europe is much more vulnerable to protectionism than the US," Mr Trichet said. "When protectionism augments, we are more touched." He added that "we should continue to grow ourselves, even though our growth is not very flattering."
The Frenchman, who headed the ECB from 2003 until Mario Draghi took over in 2011, said he trusts his former colleagues to find the appropriate response to the region's present challenges.
"I have full confidence in the Governing Council to do whatever is necessary in the circumstances," he said. "But it's wrong to believe that the central bank can be the only game in town."
Like Mr Draghi, incoming ECB President Christine Lagarde and officials from across the 19-nation euro area, Mr Trichet called on governments to step up.
"In some countries there's room for maneuvering," and "I don't think governments are blind," he said.