Bad behaviour is cause of crisis – ECB chief

The President of the European Central Bank Jean-Claude Trichet yesterday defended the euro and the ECB’s role in the current crisis during a debate in the European Parliament in Strasbourg.

Mr Trichet blamed “bad behaviour” in the EU for the fiscal and economic mess in which the bloc now finds itself.

“What we have is the bad behaviour of a number of countries that are creating problems in their own country and creating financial instability,” he insisted.

“It is not the euro which is at stake – it is financial instability driven by, in this case, the bad behaviour of fiscal policies, of course with the interaction of markets,” he added.

Mr Trichet’s comments come a few days after the EU agreed to grant an assistance package to Ireland in order to save its economy from collapse.

Latest reports state that Ireland will be given €85 billion in loans, through a new mechanism set by the EU and the IMF. The UK, Ireland’s biggest trading partner will be forking out €7 billion of the package while Sweden is expected to contribute €1.5 billion in a bilateral loan.

On the other hand, Malta and the other eurozone member states will not be forking out any actual money but only guarantees to enable the EU mechanism to raise capital on the international markets.

During the Strasbourg debate, Mr Trichet said that he was keen to bring in a “quantum leap” in economic governance to ensure errant policies are caught before they start, and repeated criticisms of the European Commission’s September legislative package, which aims to overhaul the Stability and Growth Pact.

Meanwhile, Irish MEPs rounded on Mr Trichet and Economic and Monetary Affairs Commissioner Olli Rehn, who was also present at the debate, and called for less emphasis on increasing Ireland’s 12.5 per cent corporate tax rate – the lowest in the EU after Bulgaria and Cyprus – as a condition of the bailout package.

Germany and France – the EU’s main paymasters – have repeatedly called for the tax to be increased, citing unfair competition. However, the Irish government refused to budge and said that this issue was not up for discussion.

Without explicitly referring to a rise in the Irish corporate tax level, Mr Rehn had said recently that Ireland cannot continue to be a “low tax country” and will, over the next decade, evolve into a “normal tax country”.