The full text of M. Trichet's speech is here:
http://www.ecb.int/press/key/date/2009/html/sp090226.en.html
I don't see anything positive in it beyond polite reassurances along the "I'm sure you'll work it out and when the world economy picks up, you'll be grand". (Sorry for the length of the post, but huge positive spin is being put on what is, beneath the polite words, a very harsh criticism of past economic policy and a strong medicine for what is required).
The bits that stick out to me are:
Some euro area countries have witnessed a long period of strong growth in domestic demand. These demand pressures were related to expectations of consumers or firms about future income and profit prospects, which, it is now clear, were overly optimistic. [
7] This situation was often accompanied or intensified by an insufficiently tight fiscal stance, even if headline fiscal numbers (such as the deficit and the debt ratio) still suggested a healthy fiscal situation.
Translate: you were in a bubble that was fed by pro-cyclical policies.
Technically speaking, governments and the public have mistakenly taken a cyclical or temporary expansion to be an upward shift in potential output and long-term income growth. They thus took insufficient account of the impact of a possible downturn in activity on the public finances and private income. In simpler terms, this means nothing less than extrapolating the good times almost for ever and accordingly increasing spending and indebtedness.
Translate: in case you didn't get it, it was a bubble and you are hugely in debt as a result of it.
The accumulation of relative losses in competitiveness and the build-up of domestic imbalances need, at some point, to be corrected. The correction within a monetary union can and must be achieved through lower unit labour costs increases relative to the average of the Union. In an environment of flexible wages and prices, this adjustment could proceed smoothly without significant losses in output and employment. However if the economy concerned suffers from structural rigidities in product and labour markets, a more protracted and more painful adjustment in output and employment will then finally take place.
Translate: you pay yourselves too much. Your minimum rates of pay and your public sector wage bill ("structural rigidities") are too high.
A fiscal policy that convincingly reduces future public deficits is indeed absolutely essential. In addition, measures have been taken or are under way to recover lost competitiveness and to exploit the country’s comparative advantages in its high-tech, high-skills industries.
Translate: you need to reduce public spending, reduce wages to regain competitiveness.
- First, wage setting needs to take account of the competitiveness and labour market conditions in a responsible and timely manner. [9]
- Second, national authorities should pursue courageous policies of spending restraint especially in the case of public wages. A prudent fiscal stance should be always in place.
- Third, the completion of the Single Market, particularly in services and network industries, should be achieved. A deeper integration of markets is crucial to foster competition and open product and labour markets. Measures that hinder free competition and cross-border trade must be avoided. In this context, it is of the utmost importance to resist protectionist measures.
- Fourth, in the context of the Lisbon agenda, the necessary reforms that enhance competition and improve long-term growth prospects in the euro area must be implemented.
Translate: in case you're not listening, I'll say it again - cut wages, reduce public wages, balance the budget, forget about tax havens, pass the Lisbon treaty.
I also want to call on European policy makers as a whole. As a lesson from the current crisis, we should consider ways how to strengthen our surveillance of competitiveness within the European Union, and in particular the euro area.
Translate: We'll be keeping an eye on you.
...in these very challenging times, it is not easy for all economic policy-makers to reach agreement on the way forward.
Translate: The cavalry aren't going to agree to come. You're on your own.
The only optimistic note I see is:
I am also optimistic about the prospects for this country. The Irish economy clearly faces severe challenges over the next few years – and hard decisions will have to be taken. But in many ways, the Irish economy is an excellent example of some of the characteristics that foster global competitiveness – in its openness, its flexibility and its high levels of education. And this has paid off in significant increases in income per capita.
Some things will of course have to change. But none of the positive characteristics are lost nor should they be lost in the crisis. In my view, the open nature of this economy with its associated flexibility and adaptability means that Ireland will be well placed to benefit greatly from the eventual recovery and to compete effectively in the global economy in the future.
Translate: make the required competitive changes, balance the budget and you'll be grand. But it will take a few years. Don't bank on a global recovery any time soon.