The man nominated to become the next president of the European Central Bank, Mr Jean Claude Trichet, yesterday called for European governments to reduce public spending.
As governor of France's central bank, Mr Trichet has long been critical of his own government's failure to curb its budget deficit. Yesterday, he took his criticism onto the European stage when making an appearance before the European Parliament's committee for economic and monetary affairs. The committee subsequently approved his nomination as ECB president by 20 votes to two with four abstentions.
Questioned by MEPs about the desirability of tax cuts in the euro zone, Mr Trichet responded: "The solution to all these problems is to diminish public spending. You have to obtain room for manoeuvre. That is given by reducing public spending as a percentage of GDP."
Mr Trichet's remarks came as a confrontation looms between the European Commission, which is supposed to monitor the EU's Stability and Growth Pact, and the French government, which is set to breach the pact's limit on budget deficits of 3 per cent of GDP for a third consecutive year.
The subject will loom large when EU finance ministers meet in Stresa, northern Italy, today and tomorrow to discuss the euro-zone's economic outlook. Some smaller member-states believe they are suffering because of the failure of the large countries to comply with the requirements of the stability pact. France, Germany, Italy and Portugal are all expected to breach the 3 per cent limit this year.
Mr Gerrit Zalm, the Dutch finance minister, warned this week that he would do his utmost to ensure that everyone was applying what was agreed in the pact. Those who did not were in breach of the law, he said.
In his testimony to MEPs, Mr Trichet gave a spirited defence of the Stability and Growth Pact which has been criticised not just by French politicians but also by the European Commission's own president, Mr Romano Prodi.
Mr Trichet said the ceiling on budget deficits of 3 per cent of GDP was economically justified. It represented the point at which the Keynesian benefits of additional public spending were offset by the damage to consumer and entrepreneurial confidence. Trust and confidence in the euro were essential, and the great achievement of the ECB had been to establish the credibility of the currency from the beginning.
The ECB's narrow mandate to deliver price stability was justified, he said, since price stability was a necessary condition for growth and more jobs.
Keeping inflation down would preserve consumer and saver confidence. It would deliver low unit labour cost and the most efficient allocation of capital.
Mr Trichet's explanatory, didactic style appeared to go down well with MEPs. It was evident that the new ECB president has better communication skills and better-tuned political antennae than his taciturn and gnomic predecessor Mr Wim Duisenberg.
Mr Trichet was rarely troubled by the MEPs' questions. He politely refused to comment further on his involvement, when at the French finance ministry, with the then state-owned bank Crédit Lyonnais.
Mr Trichet turned down requests that the European Central Bank should publish its minutes, including the records of how governors voted on rate decisions.
Now that his nomination has been approved by the committee, it will be voted on by the whole European Parliament on September 25th.
Parliament's opinion is not binding on the European heads of state and government who are expected to confirm his appointment at a summit in October, allowing Mr Trichet to take office at the ECB from November 1st.
