Trichet seeks deficit cuts to boost growth

European Central Bank President Jean-Claude Trichet pressed governments to trim their budget deficits, saying such action would boost economic growth by improving confidence of consumers and investors.

“We are in a period where we have to manage budgets very tightly,” Trichet told journ alists in Aix-en-Provence, France.

“I have no problem with austerity, rigor. I call this good budgetary management.”

The comments reinforce plans set out by Group of 20 (G-20) leaders last month in Toronto, where the countries representing 85% of the world economy responded to plans by European governments to tackle the region’s sovereign debt crisis by slashing budget deficits.

Advanced G-20 economies pledged on June 27 to halve deficits by 2013 and start to stabilise their debt-to-output ratios by 2016. While US President Obama is pushing his counterparts to focus on spurring growth, leaders in the UK, Germany, Spain and Italy are already tightening spending to bolster confidence.

Trichet said that deficit reduction won’t choke growth and a failure to stem budget gaps would be equally risky for the recovery.

“Confidence is key for growth, and if you cannot have confidence in the sustainability of the fiscal policies then you have no growth because you have no confidence,” he said. “The two things are complimentary.”

Trichet urged European governments to boost growth through structural changes and to publish results of stress tests on banks as part of their efforts to boost confidence in the financial system.

“Industrialised countries as a whole, on both sides of the Atlantic and Japan have to reinforce their capacity to adapt to an environment which is changing rapidly — to embark on structural reforms,” he said.