The Group of 20 rich and developing nations must tackle global economic imbalances in its new role as the key international policy forum, European Central Bank President Jean-Claude Trichet said in comments released on Sunday.
Trichet told Italy's Corriere della Sera newspaper that the G20's new role, backed up by advice from the International Monetary Fund and the Financial Stability Board, would allow a good combination of expert analysis and peer pressure.
It is particularly important that the G20 is designed to be the premier forum for international economic cooperation, he said, according to an interview transcript published on the ECB's Web site on Sunday.
The G20 has to address the issues of the domestic large imbalances between savings and investments, and of the set of unsustainable external imbalances.
We know that these imbalances have been at the roots of the present difficulties. If we don't correct them, we'll have the recipe for the next major crisis. And this of course would be totally unacceptable.
Trichet said central bankers appreciated G20 leaders' commitment to fiscal responsibility and their comments in Friday's Pittsburgh communique that a sense of normalcy should not lead to complacency.
Failing to wind back public stimulus programmes at the right time would damage confidence and delay recovery, he said.
One thing is sure. When time comes, systemic economies are not credible in going back to sustainable fiscal policy in the mid to long run, he said.
We won't have the recovery which we are hoping for. Because governments would not inspire confidence to households and corporate business. It is the evaporation of confidence that created this dramatic turmoil. Now we have to do everything to rebuild confidence.
Trichet said U.S. policy makers' commitment to a strong dollar was important in keeping currency markets and the global economy stable, repeating a long-held position. The euro hit a one-year high against the dollar on September 23.
FINANCIAL REFORMS STILL NEEDED
The ECB chief said the recent improvement in financial markets was not surprising, given the actions taken by central banks and governments, and policy makers were keen to see how this would feed into the real economy.
We monitor with great attention at this stage the interaction between the financial sphere and the real economy, he said.
Trichet urged banks to boost their capital bases and said the Basel committee's proposed new banking rules struck a good balance between taking a long-term view of capital needs and avoiding measures which would stop banks lending.
With the improvement observed in the financial markets some institutions and market participants might think that there is no need for the reforms designed at global level. It would be plain wrong to think that, he said.
More than ever it is extremely important to introduce the necessary reforms in the financial system, in order to strengthen its resilience and avoid excessive booms and busts.
The ECB has kept interest rates for the 16-nation euro zone on hold at a record low 1 percent, and no change is expected until after mid-2010.
In the euro zone, Trichet repeated the ECB's earlier assessment that 2009 economic growth would overall be very negative and 2010 would likely show a slightly positive result.
On a quarter-by-quarter basis, growth could turn positive and then relapse into negative territory.
This doesn't change our main message. Namely, that we have a bumpy road ahead and that the level of uncertainty remains exceptionally high and therefore that prudence and caution are of (the) essence, he said.
(Reporting by Krista Hughes; Editing by Nick Macfie)