Reform of global financial system vital – ECB head

Governments must pursue reform of the global financial system to avoid a risk of a “great depression” if a new crisis arose, European Central Bank president Jean-Claude Trichet told a forum in Madrid.

“It is an absolute obligation for all of us to do all that is necessary to reinforce the resilience of the financial system,” he told a meeting organised by the newspaper Expansion.

So far, half the work had been done, he said. After a first round of reforms after the financial crisis, “some think we are now back to business as usual” and that further reforms were not needed.

“I do no share this at all. We are now half way through the comprehensive financial reforms that the crisis has demanded. Much remains to be done.”

“We must be sure that the excessive fragility that was revealed in 2008 and 2009 is eliminated,” he said.

“It is extremely likely that our democracies would not be ready to provide once again the financial commitments to avoid a great depression in case of a new crisis of the same nature.”

European governments took unprecedented measures including massive state bailouts following the 2008 financial meltdown that sparked a credit crunch and plunged major economies into recessions.

“Our people would not permit for a second time that governments mobilise 27 per cent of GDP of tax payer risk, on both sides of the Atlantic, to avoid the collapse of the financial sector,” Mr Trichet said.