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| French President Nicolas Sarkozy and German Chancellor Angela Merkel at a press conference on Sept 10,2007. |
French President Nicolas Sarkozy on Thursday suggested that European Central Bank President Jean-Claude Trichet follow the US Federal Reserve by cutting interest rates.
``When the US central bank lowers its rates, everything picks up; when we don't lower ours, we go down,'' Sarkozy said in an interview with TF1 and the France 2 television network. ``I'm telling Mr. Trichet, look at what others are doing.'''
Sarkozy has repeatedly attacked Trichet since becoming president last May, saying that the ECB's eight rate increases since December 2005 have driven the euro to a record high, putting European exports.
During the ECB's press conference following the decision to keep the key rate on hold on Sept 6th last, in response to a journalist who was fed news that Sarkozy had claimed that the Governing Council decision showed that the ECB is coming around to his view, Trichet said firmly: "We are independent."
Trichet said that Article 108 of the Maastricht Treaty prohibits politicians from trying to influence its decisions.
In a slap-down to Sarkozy, his compatriot, the former head of the Banque de France said that interest rates would be higher if politicians were involved as the markets would not ascribe the same credibility to them as it does to the ECB.
Sarkozy said in the TV interview that he ``believes in the ECB's independence,'' adding that Trichet should still accept debate around his monetary policy.
At a dinner Thursday evening to celebrate the 50th anniversary of the German Bundesbank, Jean-Claude Trichet said: "With regard to the Bundesbank, I think that it is fair to say that its foundation provided not only Europe but also the rest of the world with a very good example, and indeed a role model, of central banking.
The trademarks of this role model are monetary stability, independence and credibility. The Bundesbank has embodied them from its inception, and, today, they are recognised all over the world as essential for monetary policy to deliver price stability and, in this way, to support sustained economic growth and job creation."
He also said that the clear objective of price stability and the independence from executive branches, however, were not the only necessary conditions for the success of the Bundesbank as an institution. The additional and decisive condition has been the credibility it gained with the German people and with global financial markets. Credibility is not something that can be installed by decree, it has to be earned, Trichet said.
German Chancellor Angela Merkel said at the same event that her government will resist any attempts to undermine the ECB's independence.
There is ``no reasonable argument for questioning'' the ECB's legal standing, Merkel said, adding that ``the slightest suspicion that we are in two minds on this would threaten the euro's stability.''
Sarkozy's campaign for lower rates is unlikely to succeed, Former Federal Reserve Chairman Alan Greenspan said in an interview.
Sarkozy is ``wrong on this particular question,'' Greenspan said. ``I don't think he will succeed.''
