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Central Banker Warns on Inflation Danger

Jean-Claude Trichet, the head of the European Central Bank, said he believed the current difficulties in the world financial markets were "ongoing."

Portrait, ECB President Jean-Claude Trichet

Europe should not repeat the errors of the 70s, Trichet says

The ECB president compared the current problems with the oil crisis of the mid-1970s, which damaged economies around the world for years.

Speaking to the BBC on Monday, May 19, he warned that if central banks allowed inflation to run out of control, as they did in the 1970s, they may fuel mass unemployment.

Price stability must remain the dominant target over the medium and long term, Trichet said.

The current problems were "an ongoing very significant market correction," he said.

'Demanding' economic times

Asked whether conditions may not be improving, he repeated the same assessment, once again using the key word "ongoing."

"These are demanding times, challenging times. We have this accumulation of the oil shock and the food and agro-products shock."

Bankers dealing with the current economic problems should be careful not to trigger the "second-round effects" of spiraling inflation and unemployment, Trichet said.

"In the first oil shock, we took the wrong decisions and embarked on second-round effects and tried a high level of inflation for a long period of time," Trichet said.

Call for price stability

"We created by our own absence of lucidity mass unemployment in Europe, when before 1974 we had no mass unemployment."

"Price stability, and credibility in price stability, in the medium term, is the best way to have a high level of sustainable growth and sustainable job creation," the ECB head said.

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