Trichet Says Economic Fundamentals Are "Solid'


European Central Bank President Jean-Claude Trichet, who chaired a meeting of Group of 10 central bankers today, said the world economy remains strong after turmoil on financial markets.

"The global economy has solid fundamentals,'' Trichet said at a press conference in Basel, Switzerland. While uncertainties "have augmented,'' the overall sentiment that the economy remains sound "hasn't altered.''

Today's G-10 meeting is the first since concern deepened in early August that the U.S. housing slump, which has pushed up borrowing costs and roiled financial markets, may curb economic growth. Some central banks have shelved plans to raise interest rates as they assess the fallout of the turbulence.

A global flight from risky assets gathered pace on Aug. 9 after banks, worried about losses associated with U.S. subprime mortgages, became less willing to lend to each other. That forced the ECB and other central banks to inject more than $400 billion of emergency funds into money markets to smooth inter-bank lending. U.S. employment unexpectedly fell in August for the first time in four years, fueling speculation the credit crunch is affecting the wider economy.

"This situation calls for a close monitoring and observation,'' Trichet said. "Nevertheless it is certainly the sentiment of central bankers and certainly all those around the table that bailing out bad investors would be the worst thing to do.''


Bloomberg
9/10/2007 10:50:02 AM