Well, he "seems" to be getting it now...but who knows? This is the same man who clearly did not understand the Euro area suffers from greater institutional "viscosity" than the U.S. and should have seen the 2nd derivatives (the rate of change in the change) deteriorating in GDP growth and export data.
By Ambrose Evans-Pritchard
Last Updated: 8:16PM GMT 23 Feb 2009
"What has become increasingly clear since the intensification of the
crisis in mid-September is that strains in the financial sector are
spilling over into the real economy," he said. "This has set in motion
a process of negative feedback."
Mr Trichet said the bank was disturbed by signs of an fully-fledged
credit crunch as banks shut off lending to healthy borrowers. Credit
has contracted in absolute terms for the first time in recent weeks.
"There are indications that falling credit flows reflect tight
financing conditions associated with a phenomenon of deleveraging. If
such behaviour became widespread across the banking system, it would
undermine the raison d'etre of the system as a whole" he said.
The ECB has been caught off guard by the ferocity of the recession,
which is now ravaging Europe's steel, car, aeronautics and chemical
industries. The bank's hard line has led to criticisms from trade
unions and business leaders as the eurozone's economy contracted at an
annual rate of 6pc in the fourth quarter of 2008.
Mr Trichet's warning is a clear sign that the ECB will cut interest
rates below 2pc at its next meeting in March. It has stood aloof in
recent weeks as central banks worldwide tore up rulebooks and explored
extreme measures.
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