European Central Bank President Jean-Claude Trichet on Sunday brushed off French demands that the bank focus on growth and jobs, not just inflation, but Paris said it would keep up its pressure on the central bank.
Tension is high between the ECB and France's government, with President Nicolas Sarkozy repeatedly blaming ECB policies for sluggish domestic economic growth and the euro's strength. "It is a debate that seems to me to be largely outdated," Trichet said in a live interview on TV5 television and Europe 1 radio, adding that the ECB's "first mandate" was to ensure price stability, which in turn supported growth and jobs.
He also reminded Sarkozy of his obligations under the European Union's Maastricht treaty: "The treaty, which I myself must apply, says executives and governments must not try to influence the central bank." A close aide to Nicolas Sarkozy, Henri Guaino, said in an interview published in newspaper Le Parisien on Sunday that France would continue its campaign, reiterating Sarkozy's argument that the strong euro has hurt French business.
"The euro is so high in relation to the dollar and even more so against the Chinese yuan that it is ruining all the competitiveness and productivity efforts made by our companies and our workers," Guaino said. "It cannot go on. We cannot sit with crossed arms and stay silent in the face of this absurdity," he added.
Sarkozy's criticism of the ECB has angered the central bank and some of France's European partners, such as German Chancellor Angela Merkel, who said on Thursday she would try to block any attempts to impinge on ECB independence.
Sarkozy says he respects that independence but that Trichet and his colleagues should accept a debate about the ECB's role. On Thursday he said Trichet should take note of the US Federal Reserve's recent decision to cut interest rates.
Trichet would not be drawn on what he thought of the current level of the euro. It briefly rose above $1.41 on Friday, the highest level since the common currency was launched in 1999, buoyed by a half-percentage-point cut in US interest rates last week and expectations of more to come.
"We fulfil our mandate, and in fulfilling our mandate, we create growth and employment, and that is indisputable because the figures are there," he said, adding that 2 million extra jobs had been created in France since the euro's launch in 1999. The ECB kept its benchmark rate on hold at 4.00 percent on September 6 and Trichet said after the decision that given the high level of uncertainty, additional information was needed before further conclusions for monetary policy could be drawn.
Trichet said interest rates were higher in the United States, Canada and Britain than in the eurozone, and would not be drawn on what decision the ECB might take at its next rate meeting on October 4. "We will examine the coming economic data," he said.
Trichet said France's public finances were "in very great difficulty" and the country must respect its European commitments, though he later added that he was not getting involved in French politics. France has also come under pressure from its eurozone peers to do more to cut its budget deficit.
Trichet cited various European Commission statistics, such as a forecast that France will have the highest public spending in all the EU in 2007 as a proportion of gross domestic product. "Careful management of public finances is very important and obviously, in the eyes of the Commission as well as the European Central Bank, France must respect its commitments," he added.
Earlier this month eurozone finance ministers told their French counterpart Christine Lagarde at a meeting in Portugal that Paris had to step up its deficit-reduction measures. The French government said it would try to balance its budget by 2010, as its eurozone peers say it should, if the economy allows and will definitely achieve that goal by 2012.
French Budget Minister Eric Woerth said in an interview on France 3 television broadcast on Sunday that French public finances were "in a worrying state" and "extremely fragile," adding that structural reforms were needed. He repeated that France would keep its European commitments.
Trichet said structural reforms could help France find just under an extra point of growth but only if it carried out what he said were "appropriate reforms." Countries with the highest employment had the most flexible economies, he noted.
Asked about the global credit crisis, Trichet said he favoured allowing financial market actors to draw up a voluntary code of conduct on transparency as part of efforts to avoid a repeat of recent market turmoil.
He said it was too early to draw definitive conclusions about the global credit crunch but welcomed closer cooperation between European banking supervisors, though he was sceptical about the need for a single supervisory body.