ECB recommends budgetary surplus

Romania’s macroeconomic background justifies the endorsement of a cautious fiscal policy that should target a budgetary surplus, says Jean-Claude Trichet, president of the European Central Bank.
“When we speak of a country in full process of catching up in terms of development, witnessing rapid economic expansion, we strongly recommend the implementation of a surplus budget,” Jean-Claude Trichet, Europe’s most influential banker, stated recently in Frankfurt referring to the prospect of the elections to take place in Romania. Official forecasts put Romania’s economic growth at 6.5% this year, while the public budget is built on the basis of a deficit of 2.7% of GDP, the biggest in recent years.
Trichet’s statement comes amid his call to all EU countries to consolidate their fiscal policies and whenever possible avoid the emergence of spiralling wage increases as a reaction to inflation. Consumer prices last year rose above the expected levels across the entire eurozone, with the inflation rate reaching 3.1%. In Romania, inflation climbed to 6.4%-6.9% at the end of 2007, from 4.87% in 2006, according to analysts’ estimates.
The current year is expected to bring further inflationary pressures generated by rising food and fuel prices across the globe.
Regarding central banks implementing inflation-targeting strategies, such as the NBR, Trichet believes they have all the means to counter inflationary pressures coming from the outside in their economies.
“We do not have the same conceptions, but our objective is the same: to strongly anchor inflationary pressures because this is our responsibility as central bankers. Practically, we’re in the same situation and we have to overcome supply shocks that are driving inflation rates up,” added the BCE president.
On Thursday, Trichet held his first press conference of 2008, in which he explained the ECB’s decision to maintain the reference rate for the euro at 4%, although he specified the institution he heads was poised to react against inflationary expectations.
The European Central Bank decided to keep the reference rate at 4% amid concerns about inflation and eurozone growth slowing down.