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ECB head blames Germany and France for debt crisis

AFP/The Local · 20 Jun 2010, 13:00

Published: 20 Jun 2010 13:00 GMT+02:00

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In remarks published on Sunday in the Welt am Sonntag newspaper, Trichet said that by compromising the European Union's Stability and Growth Pact in 2004, the powerhouses had allowed budgetary discipline to slacken.

"I wish the German public had reacted with the same indignation to the breach of the Stability Pact in 2004 that they showed toward our decision to buy government bonds," he said, referring to the ECB's unprecedented move in May aimed at halting speculative attacks and restoring market stability.

He noted that both Berlin and Paris had failed to uphold the standards they had fought to impose on the EU by forcing through a dilution of Stability Pact's strict penalties for excessive public deficits.

"The governments were extremely unreliable, over the course of months and years," Trichet said.

The ECB president ruled out a default by debt-wracked eurozone countries Greece, Spain or Portugal.

"We will not allow that," he said.

Trichet also had sharp words for banks in the aftermath of the financial crisis touched off by the collapse of US investment bank Lehman Brothers in September 2008, which sent the global financial system into turmoil.

He said still "excessive" salaries and bonus packages based on short-term profits with little foundation in the real economy were unsustainable.

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"That has nothing to do with our fundamental democratic values," he said.

EU leaders agreed on Thursday to impose a tax on banks that could fund future bailouts in the wake of Europe's debt crisis, and to "promote" the option of a global tax on financial transactions when G20 leaders gather for a summit in Toronto, Canada next weekend.

AFP/The Local (news@thelocal.de)

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Your comments about this article

17:38 June 22, 2010 by Beachrider
Germany is already in debt to a degree higher than the USA (when debt is scaled to GDP).

China is unmistakably the world's creditor now. With the appreciation of the yuan, they have diminished the value of these overseas assets. It could be bad if China takes all of its marbles and brings them back home, right now.

Non-Investment Banks 'create' capital by turning savings into leveraged loans, that is their primary function. Domestic regulations define what is wreckless and what is acceptable risk.

The biggest is today is that some people want public indebtedness to be halved 'cold turkey', while others look for a more gradual approach. The 'cold turkey' folks carry less regard for the immediate impact on the economy because they believe that big cuts in the GDP are an acceptable bargain for eliminating the debt. The 'gradual' folks do not.
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