Budget cuts and structural reforms will help cement economic recovery, while bank stress tests will help restore confidence, European Central Bank President Jean-Claude Trichet said on Sunday.
Government austerity drives and deficit cuts would not choke growth but rather restore confidence, he said, and repeated his opposition to Europe-wide debt issuance to spur growth.
I have no positive view of such an idea. We are in a period where we have to manage very carefully all the budgets, he told reporters on the sidelines of an economic conference in Aix-en-Provence in the south of France.
We see structural reforms as fundamental if we want to increase the economic growth potential of Europe, he added.
He said he did not think Europe was facing another period of recession.
Plans to stress-test European banks would also be an important element in restoring market confidence, Trichet said.
(For) durable growth that is sustainable in the long term, you must strengthen confidence, and that means having budgetary policies that are balanced and sustainable in the eyes of everyone, Trichet said.
Trichet reiterated his call to strengthen budgetary surveillance rules under the European Stability and Growth Pact as much as possible, especially where sanctions were concerned, before envisaging changes to the treaty.
There could later be a change in the treaty, but first, within the framework of the current treaty, we need to do the maximum on strengthening prevention, on sanctions, on the quasi automatic nature of sanctions; that all is very important, he said. He also said indicators of competitiveness should be monitored as well as budget deficit levels.
At the global level it is clear that we are experiencing a recovery, which is confirmed particularly in the emerging world but also in the industrialized world
(Reporting by Lionel Laurent, Jean-Baptiste Vey and Matthias Blamont, Editing by Marcel Michelson)