European Central Bank chief Jean-Claude Trichet warned today that global markets were in the midst of a major correction which recalled the 1997-98 Asian financial crisis and the first global oil shock.
'I wouldn't say the worst is behind us,' the ECB president told the European Parliament in Brussels.
'If we don't learn the lessons of the past we will find ourselves faced with the same problems that we encountered during the first oil crisis,' when countries responded to higher prices by raising wages and salaries, he said.
That had fuelled an inflation spiral, choking off growth and causing widespread, stubborn unemployment that dogged Europe for decades. 'Never forget, mass unemployment in Europe started with the very bad reaction after the first oil shock' in 1973, Trichet noted.
In what he called one of the euro zone's most striking successes, Trichet pointed out that 15.7 million new jobs had now been created since the single currency was launched in 1999, compared with 4.5 million in the previous nine years.
The increase in the last nine years was far more than in the US, he said.
The ECB chief also stressed the importance of full transparency by banks and financial institutions regarding losses suffered in connection with the US sub-prime market meltdown.
The need for such clarity 'is not a new observation' but had already been identified during the Asian financial crisis, he said. Markets have been in nearly constant turmoil since the collapse of the US market for high-risk, or sub-prime, mortgages in August, which led to a global credit crunch as banks became wary of lending to one another.
Trichet stressed repeatedly today that the ECB saw its role amid the turmoil as one of anchoring inflation expectations, making clear that an interest rate cut called for by some investors and politicians should not be expected in the near future.
